Pension funds in the UK are providing better returns than savers expect, with average annual growth over five years of nearly 8 per cent for those 30 years from retirement, analysis from PensionBee has shown.

The provider’s Pension Performance Benchmark research analysed several pension providers and found that savers could be underestimating the growth potential of their pension pots.

Previous research from PensionBee found that more than a third (34 per cent) of savers between the ages of 18 and 54 anticipated returns of between 5 per cent and 7 per cent.

Its analysis of pension fund performance showed that leading pension funds had delivered an average annual return of 7.72 per cent over the past five years for people 30 years to retirement.

However, for savers closer to retirement, the average annual return over the same period was 5.27 per cent.

This was aligned more closely with saver expectations, as 37 per cent of people aged 55 and over expected a return of between 5 per cent and 7 per cent.

PensionBee said the findings emphasised that while pension growth can be “substantial” over a longer time horizon, savers’ expectations were broadly in line with the actual performance of pension funds closer to retirement.

It noted that the data suggested that a longer investment window allowed for greater market exposure and stronger returns, compared to the more conservative strategies typically adopted as savers approach retirement age.

However, the provider said that while returns may be more conservative for those closer to retirement, the strategies in place ensured that savings were protected as people get closer to drawing their pension.

“These results demonstrate the importance of long-term planning and investment in pension funds,” commented PensionBee chief engagement officer, Clare Reilly.

“The average fund performance exceeding saver expectations shows that with a well-planned strategy, pensions can deliver strong returns over time.

“The findings underline the value of continued engagement with pension plans, as well as the importance of selecting a provider that offers flexibility in investment strategy based on individual timelines and risk profiles.”

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