Concerns raised over impact of high fees and inflation on pension savings

Industry experts have raised concerns over the impact of rising inflation and high fees on pension savings, after research from Netwealth revealed that these factors could lose savers an “alarming” 11 years of retirement savings.

The analysis showed that an individual retiring with a £750,000 pension pot and an expected annual drawdown of £30,000 could expect their pot to last 37 years in retirement, based on 2 per cent inflation and 0.65 per cent all-in-fee.

However, an extra 1 per cent in fees and 1 per cent in inflation would see this drop by 11 years, with their pension estimated to last only 26 years as a result.

Commenting on the findings, NetWealth CEO and founder, Charlotte Ransom, emphasised that whilst savers cannot control inflation, they can control how much they pay in wealth management fees.

"If you save in fees you can offset partially, if not totally, the negative effect of inflation on your investments over time," she explained.

For instance, she noted that if a saver was paying 2 per cent in annual fees and higher inflation kicks-in for the period, say from 2 per cent on average to 3 per cent, their pot will only last 25 years.

“However, by using a modern wealth manager who charges less than 1 per cent, say 0.65 per cent, then the pot may last 30 years, even in a higher, 3 per cent inflation scenario," she continued.

"So you actually managed to get a further 11 years of retirement, despite the higher inflation."

Industry experts have previously raised concerns over the impact of inflation on savers ability and willingness to adequately save for retirement, defined benefit (DB) funding levels have seen improvements amid rising inflation, with the Bank of England's decision to increase the interest rate also highlighted as "good news" for some schemes.

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