I’m just getting started saving in a pension (bit of a delay as was focused on paying off some credit card debts and saving for a house in my twenties).

I’ve been automatically enrolled into a scheme through my employer and they are charging me 0.75%. Should I just stay where I am or move my money elsewhere? The fund seems to be delivering about average performance and I want to make sure I’m getting value for money.

Simon

By Tom Selby, AJ Bell - Senior Analyst 

Under automatic enrolment rules, all UK employers must offer a pension scheme to staff who satisfy certain criteria. The scheme has to meet a set of requirements, among these is a charge cap for default funds – the investment you are automatically placed into if you make no investment selection – currently set at 0.75% a year.

The purpose of the charge cap is to ensure people who don’t make an active choice are not at risk of being ripped off. However, it does not guarantee you will either get the best performing fund or one with the lowest charges.

In fact, the one-size-fits-all nature of many default funds means they are unlikely to be tailored in a way that matches your specific plans or risk tolerance. 

Given that small differences in charges can make a big difference over the long term, it could be worth your while scouring alternatives. While some employers will make sure their chosen scheme offers a range of fund options or an alternative scheme to house employees’ contributions, they are not obliged to do this and often don’t.

This means if you do find a scheme you prefer for your auto-enrolment funds, you’ll need to initially transfer over any fund built up, and then every month transfer over the contributions paid into the original scheme. Unfortunately it’s unlikely your provider will agree to direct your contributions (and the valuable employer match) into a scheme it hasn’t chosen.

While this could be a worthwhile exercise, it will require some ongoing effort on your part. The average pension transfer time is around nine days, although this can vary significantly depending on the providers involved. 

As a guide, someone paying in £4,000 a year into a pension scheme could be £16,000 better off after 30 years if they pay into the lowest-charging auto-enrolment scheme versus one charging 0.75%. This assumes investment growth of 5% a year.

If you do decide transfer your pension, make sure you do your due diligence on the provider you’re moving to. Scammers have been on the rise in recent years and are particularly focused on targeting people’s hard-earned retirement pots, so you need to be absolutely certain that your fund isn’t at risk of falling into the wrong hands.

DO YOU HAVE A QUESTION ON RETIREMENT ISSUES?

Send an email to editorial@sharesmagazine.co.uk with the words ‘Retirement question’ in the subject line. We’ll do our best to respond in a future edition of Shares.

Please note, we only provide guidance and we do not provide financial advice. If you’re unsure please consult a suitably qualified financial adviser. We cannot comment on individual investment portfolios.

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