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Industry experts have raised concerns that UK savers are losing out on potential earnings by not choosing better pension options and are paying higher fees as a result.
According to data from investment platform Interactive Investor, over 80% of savers don’t know the fees associated with their pensions.
Additionally, 80% of the 8.3 million current accounts in the UK that hold at least £10,000 are collecting no interest, as reported by the savings app Spring.
Failing to switch pension providers when faced with rising management fees could lead to significant financial shortfalls during retirement, cautions Craig Rickman, personal finance editor at Interactive Investor.
“It’s alarming that most savers are unaware of the fees they are paying for their pensions,” he commented.
“The challenge for savers is that while pensions can be transferred to better options, many don’t know the costs imposed by their current providers. They lack insight into whether their pensions are fairly priced,” he continued.
Consumers often overlook the costs of pension plans, which can include account and exit fees. As investment amounts rise, so do these fees, diminishing overall savings, noted Interactive Investor.
Moreover, individuals miss out on earning interest by keeping their funds in regular current accounts instead of opting for savings accounts like Isas, according to Spring.
“We notice a lot of savers leaving significant sums in low-yield current accounts,” remarked Derek Sprawling, managing director of savings at Spring.
“Many are holding large amounts that could earn much better returns elsewhere. Current accounts aren’t meant for saving.”
Some consumers hesitate to move to savings accounts that may restrict access to their funds, particularly those that impose penalties for withdrawals, Spring noted.
“While it’s common to keep some money in a current account for emergencies, maintaining a balance in a low or zero-interest account risks that money not being considered a valuable asset,” Sprawling added.
In general, while 45% of investors in various asset classes express willingness to switch platforms for lower fees, only 7% actually investigate the costs before opening a new account, according to Interactive Investor.
“It’s evident that there are significant gaps in pension awareness in the UK, particularly concerning fees. Though the market is outside of our control, you can manage your investment costs,” stated Camilla Esmund, senior manager at the organization.
“The issue extends beyond just pensions. Unfortunately, it can be challenging for consumers to clearly identify the costs linked to their investments, particularly the platform fees. However, it’s crucial for consumers to understand what they are paying.”
