A recent Money Management survey found that millions of pension savers are being hit with fees that can total tens of thousands of pounds over a lifetime of saving.

Besides the difference in fees, the pension funds are otherwise almost identical. Choosing the wrong pension provider can mean facing retirement an extra £40,000 poorer, say analysts from Money Management.

Fee difference

A customer who opens a personal pension with a provider that charges some of the lowest fees could end up with a pension pot worth £143,902 at retirement. This assumes contributions of £200 per month for 25 years.

If a saver were to make identical contributions for the same amount of time into one of the highest charging plans, they would receive just £103,617 at retirement. This leaves them £40,285 worse off at retirement. The figures all assume that savers have chosen the very popular standard balanced managed fund at both providers.

This means that all Britons who are trying to save money for retirement are in danger of walking into the wrong pension fund, doomed to lose thousands more than they need to over the course of their saving.

New watchdog

These beleaguered savers don’t just lose a large chunk of cash from their savings, either, as picking a high-charging pension can plague savers for a lifetime. The difference of £40,285 between the lowest and highest charging pension funds means a difference of £2,500 a year in annuity income. Over a lifetime, they will make £47,500 less in income.

Experts say that the generations set to retire in the future are collectively trillions of pounds short of a comfortable retirement. Saving more, and promoting a savings culture that puts away money for the future, is the only way to ensure that millions of people will not entire retirement in poverty. Some critics say there is great danger in blowing the whistle on these kinds of astronomical fee differences, as people may stop saving for retirement in their fear of picking the wrong pension.

Some industry experts, such as David Normal of investment firm TCF, think just the opposite. Norman has had meetings with the Treasury and urges ministers to use the new city watchdog, the Financial Conduct Authority, to ensure more regularity between the fees of pension providers. The FCA launches next year.

Norman thinks that this is important because he says there are 16 layers of tricky fees on pension investments, some of which are completely hidden from investors.

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