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Can you boost your retirement fund without saving more?

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Picking a different fund for your workplace pension scheme could add a chunk to your pension pot, giving you a healthier income in retirement, according to new research from Hargreaves Lansdown.

Those who made active choices about their pension scheme, rather than simply picking the default scheme, have boosted their returns by up to 4% per year. This mounts up over time with the effect of compounding.

The most popular pension funds chosen by workplace pension members have beaten the average return of default funds by 4.08% a year over the past 5 years. They have also defended capital in trickier markets. In 2018, when stock markets fell, the average default funds fell 5.63%, compared to a 2.69% fall for the most popular alternative options.

Nathan Long, senior analyst at Hargreaves Lansdown, said that making active choices with a pension fund can be a good option to boost your retirement pot if you can’t afford to pay more.

The group showed the impact on a pension pot at age 68 for someone starting saving at 22 earning £30,000: boosting returns by 1% per year – even while contributions are kept the same – increases the pot at 68 by over £55,000, compared to only around £23,000 if contributions are increased by 1% every year but investment returns remain the same.


Scenario Contribution Investment Return Charge Today’s terms Boost to pension
Baseline 8% 5% 0.75% £    186,889 N/A
Increase contributions by 1% 9% 5% 0.75% £    210,250  £23,361
Increase returns by 1% 8% 6% 0.75% £    242,671  £55,783


Long said there are sound reasons why changing the underlying funds in a pension pot can be beneficial: “Default funds are the least worst option for the most people in the scheme but are rarely the best choice for any one individual scheme member”

That means default pension funds are generally conservatively managed, as they have to be a one-size-fits-all fund. Typically they will only have around 65% of their assets invested in shares. Stock markets have tended to perform better than other assets over time and as such, funds with a higher stock market allocation should deliver better long term returns for active investors (although there will be greater fluctuations in the capital)

Long added: ‘Default funds are the Model T Ford of the pension world. A simple, basic fund designed to be suitable for anyone. For most people though, a better solution can be found, be it a sports car or a people carrier. Take the time to find something more suitable and you could end up with more money in retirement.”

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