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Pension fees risk wiping £20,000 off your retirement fund

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Almost a million savers risk losing years of their retirement income to expensive stockbroker fees, consumer group Which? has warned.

Seemingly low percentage fees are often overlooked, but small differences in the fees charged can wipe more than £20,000 off the value of self-invested personal pensions, known as “Sipps”, over the long term, its report said.

A saver with the average £268,000 invested in a Sipp would end up with £358,378 in their pot after 10 years, assuming an annual investment return of 3pc, if they opted for the cheapest Sipp provider, Interactive Investor. 

But if they chose Hargreaves Lansdown, Britain’s largest investment broker, their pot would be worth almost £13,000 less, at £345,498. After 15 years, the difference would widen to almost £21,700, with £414,630 in a pot with Interactive Investor versus £392,903 with Hargreaves Lansdown. 

Hargreaves Lansdown charges a 0.45pc fee on the first £250,000 and 0.25pc up to £1m invested in funds in a Sipp, meaning a £500,000 portfolio would cost a saver £1,750 a year in fees. A flat 0.45pc charge applies to individual shares held within a Sipp, but this is capped at £200 a year.

By contrast, Interactive Investor charges a monthly fee of £12.99 for all portfolios, regardless of size. Which? found Interactive Investor was cheaper than the vast majority of cases against its competitors – apart from a £100,000 pot, where rival stockbroker Vanguard’s 0.15pc charge would be £6 cheaper over a year. 

Sipps are becoming increasingly popular, as savers look for more cost effective ways to manage their retirement pots. Sipp sales grew 15pc in 2021 compared with the year prior to 851,963 from 740,418. 

Jenny Ross, of Which?, said: “Sipps can work out cheaper, but it pays to choose a provider carefully. The range of investments on offer, online tools to help you manage your pot and level of customer service can also vary considerably, so it is worth taking the time to weigh your options carefully.”

Richard Wilson of Interactive Investor said: “Pension blind spots are costing British savers a fortune. Potentially life-changing sums of money are all too often being eaten up by high fees and wasted away in the wrong risk strategy, sometimes at the hands of some of the UK’s best known life companies.” 

The broker Vanguard topped the Which? table for customer satisfaction, with a 79pc customer score. It charged 0.15pc, capped at £375 per year. 

However, Which? noted that its selection of investments was limited to passive “tracker” funds, which simply follow a stock market index rather than being controlled by a fund manager.

Interactive Investor and Fidelity came joint second, with a satisfaction score of 74pc. 

A spokesman for Hargreaves Lansdown said: “We have a very simple and transparent fee structure, where clients pay Hargreaves Lansdown the service fee plus the cost of any share deals and nothing more.”

“Client value dealing with a trusted, financially secure provider, the excellent service, the comprehensive range of investment options including the discount available on over 30pc of the funds available, the digital tools, app, guidance and research, and the option for financial advice for those that want it.”