Employees could be missing out by choosing default pension fund

Recent research has revealed that many workers could be missing out by choosing the default fund options on their workplace pension.

According to Hargreaves Lansdown, the more popularly chosen funds have outperformed the default options by just under 5% each year for the last half a decade.

The data found that one of the main causes for this was the multi-asset nature of most default funds, which usually have over two-thirds of assets invested in equities.

Looking at around 12,000 workplace pension scheme members, Hargreaves compared the average performance of the most frequently chosen funds against the average returns of the default funds, offered by nine workplace pension providers.

The average top ten funds delivered a 13.51% return during the last three years; this can be compared to the average default fund, providing a return of just 9.35%.

Looking at the last five year period, the average fund in the top 10 returned 14.26%, 4.89% more than the return from the average default fund.

The data from the provider also found that those who have been a member of a scheme for longer or have a larger pension fund will be more likely to make a decision about their investments on an independent basis.

Commenting on the research was Nathan Long. The senior pension analyst from Hargreaves Lansdown stated: “Default funds are a necessary element of auto-enrolment pensions, but by their nature they are designed as a one-size-fits-all solution, and are generally more conservatively managed. For most people better investment options are available.”

He went on to state that, according to the research, better returns are being achieved by those actively engaging with their pensions.

 

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