The analysis looked at the cost of retirement investing between different on- and off-platform pension providers; including advisers, product and platform, wrapper and investment charges.
The report, which was sponsored by Scottish Widows, found that the cost of investment solutions varies greatly according to the chosen firm.
This resulted in a gap of nearly £40,000 ($50,096, €44,563) in the final value of the pension, with the lowest difference among investment options being £14,000.
The importance of choice
“Keeping charges as low as possible is absolutely vital for all investors, whether advised or non-advised,” Tom Selby, senior analyst at AJ Bell, told International Adviser.
“While charges are only one component of value for money, they are an incredibly important part and, as the Lang Cat report shows, even small variations can have a huge impact on retirement outcomes.
“It’s worth noting that what people pay will depend on the retirement choices they make and the provider or platform they choose. In particular, the range of charging options available across the market means both investor choices and fund size will have a significant bearing on the value they get.
“This is one of the reasons it’s so important barriers to switching in the market are addressed, following the FCA’s platforms market study.
“Despite the existence of charge comparison services, including the Lang Cat’s excellent heat maps, it remains too difficult for investors to compare fees. We believe the FCA should consider requiring providers and platforms to publish the revenue they earn per £1 of assets under administration to help investors make this comparison,” he added.
Focus on ‘real life’
Steven Nelson, consulting director at the Lang Cat, said that investors’ choice should not only be based on cost.
“When it comes to investing for and in retirement, our analysis shows that total costs differ enormously and can have a significant impact on the size of a client’s pension fund. Although the array of provider charging formats can make due diligence difficult, by selecting the right provider for each client’s needs, advisers can add a huge amount of value to the individual’s future financial position.
“Obviously costs alone should not form the basis of suitability decisions; quality and breadth of proposition are both crucial elements of the retirement solution. For some clients it may be worth paying more for additional tools, while for others a lower cost solution will be more appropriate.
“This report gives advisers a starting point to see how total costs compare across several on- and off-platform pension providers, illustrated through ‘real life’ customer scenarios.”
Eroded returns
But advisers should keep cost in mind, said Jackie Leiper, distribution director at Scottish Widows.
“Value for money is a key consideration when saving into a pension and one element in determining this is cost. A pension fund may perform well but high costs can quickly erode those returns leaving clients with less money to fund their later life.
“And those costs are compounded over time. We hope the Lang Cat’s analysis will be a useful tool in helping advisers to assess the long-term impact of any ongoing and ad hoc charges applied to pensions over the lifetime of a plan.”
