U.K. employees enrolling in company-sponsored pension plans may be “buying blind” into funds charging high fees that could reduce their savings by as much as 50 percent, according to a report by Cass Business School.
Ninety percent to 97 percent of employees joining a company pension plan use the default fund offered, meaning whether they end up with a large or small retirement fund is a “lottery” due to fees, said the report. Smaller employers are more likely to use older funds with higher charges, it said.
“For too long many U.K. employees have suffered from high-charging pension schemes with choices and charges that are difficult to understand and which do not deliver what members expect,” said Morten Nilsson, chief executive officer of NOW: Pensions, a Danish retirement fund manager, that paid for the report. Employees “should be able to contribute and see their employer contributing, safe in the knowledge that they will get a pension which is good value for money.”
The government this month introduced an automatic-enrollment pension policy that requires companies to offer a retirement plan and employees to opt out rather than opt in. The average British mutual fund charges 2.21 percent of its clients’ assets annually, compared with 1.04 percent in the U.S., according to academic research published by the Review of Financial Studies in 2009.