DIY investing fees knock eight years off your pension

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Savers risk wiping eight years off their pension if they transfer their retirement funds to a DIY investment firm, rather than a collective workplace pension. 

Higher fees alone would knock £30,000 off the value of their pension savings, with self-invested personal pensions, known as Sipps, costing 1.4pc a year on average. That is according to calculations by XPS Pensions, a consultancy. 

Master trusts, which are multi-employer pensions, are typically much cheaper, costing nearly half as much as Sipps, at 0.75pc on average. The National Pension Trust, run by XPS, charges 0.65pc a year. 

The margin on fees can appear small but the difference can run into the tens of thousands of pounds over the course of a career, on even the most modest of pots.

Someone transferring a £102,000 pension at age 61 who planned to take 4pc of the pot each year would run out of money eight years sooner if they moved it to a Sipp compared to a master trust, figures have shown. This does not account for returns, which can vary hugely in DIY pensions. 

Three quarters of all those transferring their pension in 2020 put their money into a Sipp, moving pots worth £102,000 on average. 

Savers face a “significant risk” of unintentionally putting their money in high cost pensions, which can deprive them of their expected lifestyle once they reach retirement, Sophia Singleton, of XPS, said. 

“DIY investors mostly tend to not do as well because they are making decisions by reacting to the wider market. There’s a risk they pay for features and things they really don’t need,” she said.

Similarly, figures previously compiled for Telegraph Money by LCP, a consultancy, have shown that paying just one percentage point more in charges can wipe years of income from a pension pot. 

Pensioners who use “income drawdown” can be more than £70,000 poorer within 25 years on a £500,000 pension pot if they pay just one percentage point extra.

The Government has capped fees on certain workplace pension schemes at 0.75pc a year to avoid employees being ripped off.

However, for investors using a personal pension, the amount paid differs according to the investment company used. Sipps tend to offer a wider range of investments to choose from and operate on a “do-it-yourself” basis, where savers are responsible for picking investments.