Workers could enjoy a £150,000 boost to their retirement pots if employers chose pensions with just a 1 per cent increase in returns, according to research by Smart Pension and CAPA data.
The Value for Money framework is a piece of legislation within the recently passed Pension Schemes Act. It is specifically designed to provide clearer, more transparent, and easier comparisons of pension fund, and could in theory make it easier for employers to select plans with maximised returns for employees.
Analysis carried out by Smart Pension, based on five year annualised performance data from 21 providers (sourced from CAPA data), projected outcomes for a typical 25-year-old saver retiring at 65 years old with a £1,000 starting pot, £30,000 salary, and found that just a 1 per cent rise in investment returns can improve retirement outcomes at an exponential rate and can add over £150,000 to final retirement savings.
The research also found that a 35-year-old, with a £10,000 pension pot, who considers switching from a workplace pension to an alternative retail provider offering a medium risk investment strategy, could be over £165,000 worse off than if they stayed with their workplace provider.
Smart Pension called for the government and industry to apply VfM across the entire defined contribution market, including the retail sector by 2028.
Jamie Fiveash, chief executive at Smart UK, says: “Even small improvements in net returns at a population level could lift significant numbers of people over adequacy thresholds and have a wider impact on the UK’s economic health and addressing the UK’s worrying savings gap. We urge policymakers, employers and all the industry to act now, and to lean into both the spirit and focus of the new Value for Money framework.”
However, former pensions secretary Guy Opperman has voiced ongoing concerns with two regulatory bodies (the Financial Conduct Authority and The Pensions Regulator) overseeing VfM, labelling the legislation in its current form as “batshit” due to this issue.
