Savers are unaware that they are missing out on hundreds of thousands of pounds because of the poor performance of their workplace pensions.
Almost all British workers (92 per cent) saving into a pension use a default investment strategy chosen by their employer, according to the Pensions Regulator.
But new analysis by specialists from JLT Employee Benefits indicates there is an enormous difference in the performance of the handful of auto-enrolment providers available to British workers.
There are 10 main workplace pension providers, JLT said. And the specialists calculated that the difference between the best and the worst providers translates into more than £300,000 by the time people get to the age of 55.
This means Britons could afford to buy an entire average-priced home with the difference.
"The disparity in their strategies and risk-return profiles could lead to a huge retirement shortfall, amounting to the equivalent of a property. It is alarming to see that the situation hasn’t improved since we raised this issue two years ago," said JLT's Maria Nazarova-Doyle.
Minimum auto-enrolment contributions currently stand at one per cent from an employee and one per cent from an employer. These are scheduled to ratchet up to two per cent and three per cent respectively from next year and reach a total of eight per cent by 2019.
Nazarova-Doyle added: “Statutory contributions are set to quadruple from two per cent to eight per cent in the next two years and this is a step in the right direction. However, this would have a limited impact if it isn’t backed up with sound investment decisions.
It is not sufficient to pick a good default investment strategy at the outset and let it run its course. Investment strategies that perform well one year can do poorly another year. Default strategies are like gardens – they need constant monitoring and tending for the best results.
How much of my salary will go into a pension under auto-enrolment?
|Date||Employer minimum contribution||Total minimum contribution|
|Before April 5 2018||1%||2% (including 1% staff contribution)|
|April 6 2018 – April 5 2019||2%||5% (including 3% staff contribution)|
|April 6 2019 onwards||3%||8% (including 5% staff contribution)|