“Failing to actively engage” with pensions during one’s working life could have a “staggering financial impact”, according to a new report from PensionBee, a leading online pension provider.

Are you on top of your retirement finances? New research from pension provider Pension Bee suggests that failing to stay right on top of where your savings are invested, as well as how much you are tucking away each month, could cost you dearly into the future.

In fact, the findings suggest that ineffective investment strategies, inadequate contributions, and poor pension management could cost savers hundreds of thousands of pounds over their lifetimes. Let’s see how that looks when broken down by topic.

Ineffective investment strategy – potential cost: over £500,000

Over 90% of pension savers remain in “default funds”, which is a fund that a pension provider automatically invests your money into if you don’t choose your own investment.

While convenient, these may not maximise returns. In fact, says Pension Bee, using the model shown below[i] a saver achieving just 3% annual investment growth could accumulate £194,185 by age 68. However, those in a fund achieving 7% growth could amass £697,247—a staggering £503,061 difference.

Inadequate contribution levels – potential cost: over £190,000

Investing only the minimum required contribution into a workplace pension is common. However, a saver contributing 13% of their qualifying earnings instead of the minimum 8% (5% personal contribution and 3% employer contribution) could accumulate an extra £121,366.

Poor pension management – potential cost: over £40,000

Paying high management fees and losing track of hard-earned pension pots can also diminish retirement savings. According to Pension Bee’s calculations, paying annual fees of 1% could shrink pension savings by £17,711, compared to paying fees of 0.7%. Additionally, losing a £10,000 pension pot at age 30 could reduce your final pot by £23,544.

How to maximise your income…

Pension Bee says that even small, consistent actions can lead to significantly better retirement outcomes.

• Check your pension regularly: Across all age groups, more frequent logins correlated with larger pension pots.
• Be proactive: Customers who elected to switch from the default plan to more specialised funds held higher average pension values compared to those remaining in the default fund.
• Engage with educational content. Keeping abreast of news and changes can also lead to long-term benefits.

Lisa Picardo, Chief Business Officer UK at PensionBee, commented: “Engaging with your pension doesn’t have to be overwhelming. Many people put it off until retirement is near, by which time changing the outcome is much harder. But our research shows that small, early actions can make a profound difference.

“Simple steps such as regularly reviewing your pension, consolidating old pots, and increasing contributions when possible can dramatically improve retirement outcomes.”

[i] Assumes a starting salary of approximately £25,000 at age 21, average annual salary increases of 2%, 8% pension contributions from age 21 to 54, 0.7% in annual management charges and no withdrawals over the period.

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