Could you help your clients get more from their pension pots, more quickly? In my experience, and in the vast majority of cases, the answer is yes, and it’s all about the fees that are being charged. Regardless of age or how much is being invested, high industry fees can delay the retirement date and decrease the pot of money available. I believe it is our job, as advisers, to help our clients understand the impact of the fees they are paying.


Let’s have a look at an example:

INVESTOR A is aged 45, has pension and ISA savings valued at £300,000, and wishes to retire with a fund in the region of £750,000, preferably at the age of 65. The total Financial Services Industry cost on their money is 2.5% per annum. Assuming an average growth rate of 6% per annum, the fund value would not achieve the target value until the investor is aged 73.

Remember, £300,000 of this fund value was Investor A’s money to start with, a profit of £467,000 has been generated and it has taken 28 years to achieve target value. The total Financial Services Industry charges have totalled £345,512 over this time.

It has therefore cost Investor A £345,512 to make £467,000 and they have lost eight years of their desired retirement lifestyle.

INVESTOR B, also aged 45 and with pension and ISA savings valued at £300,000, wishes to retire with a fund in the region of £750,000 and preferably at the age of 65, decided to review the industry costs.

Investor B realised that they could get the same returns and same consumer protection for 1.1% per annum. They also achieved an average 6% return per annum on their money. They achieved a target fund value of £773,000 by age 65, eight years before Investor A.

In other words, they have achieved their target retirement fund value at their projected retirement date with one simple decision; shopping around to get the best fees.

As £300,000 was Investor B’s money anyway, they have made a profit of £473,000 in 20 years, not 28, and it has cost investor B only £102,000, not £345,512, to make £473,000 and achieve their lifestyle objective. If at the time they decided to delay retirement to age 73 like Investor A, the fund value would continue to compound and be in the region of £1,128,500, an additional increase of £360,000.

Fees can make a big difference and it’s important that the industry is both transparent about these fees and their impact.

Let’s look at another example:

INVESTOR C is aged 30, has a smaller pension fund valued at £40,000, and is to retire at age 65. The average annual return is 7% per annum over the investment period. The total Financial Services fees are 2.13% per annum and no further contributions will be made.

The fund value is projected to be £203,968 and as £40,000 was investor C’s money already, she has made a profit of £163,968. The Industry would report how well she has done and Investor C may be content with her advisor’s recommendations. However, it has cost Investor C £74,588 in Financial Service Industry fees to make £163,968.

INVESTOR D, like Investor C, has exactly the same scenario but shops around and reduces her fees to 1.1%. Lower fees do not mean lower returns and investor D also averages a 7% return per annum. Because the fees do not cause such a drag on the returns, the fund value compounds and at retirement age of 65 has grown in value to £291,105. As investor D already had £40,000, a profit of £251,105 has been generated but with a reduced industry cost of only £48,623.

Fees can make a big difference and it’s important that the industry is both transparent about these fees and their impact.


About the author

Hannah Goldsmith is founder of Goldsmiths Financial Solutions and author of ‘Retire Faster,’ Hannah specialises in Low Fee Investing and is challenging the way financial services are delivered to consumers in the UK by enabling each client to understand the nature of investment costs and the impact these costs have on their future lifestyle. Goldsmith’s complimentary ‘Second Opinion Service’ reviews investors’ existing portfolios and makes recommendations on risk, diversification, performance, cost and tax efficiency, making investors’ money grow in a more transparent and financially efficient way.

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