Savers miss out on £70,000 at poorly performing pension funds
Thousands of poorly-performing pension funds have been placed on notice by regulators as analysis reveals that savers are missing out on nearly £70,000 in lost investment returns.
Nausicaa Delfas, the new boss of The Pensions Regulator (TPR), vowed on Tuesday to go after the trustees of struggling funds that are letting down their members.
The Telegraph can separately disclose that average savers are missing out on tens of thousands of pounds in lost investment returns at conservative British pension funds, after they failed to keep pace with more nimble international rivals.
In what will be interpreted as a change of focus by TPR, which has typically prioritised reducing risk over maximising returns, Ms Delfas said: “No saver should be in a poorly performing scheme that doesn’t offer value for money.
“Where we find poor performance, the message is clear: wind up and put your members into a better run scheme. Or we will consider all powers at our disposal.”
The consultant Oliver Wyman has said that pension schemes could add as much as 12pc to a young worker’s lifetime retirement savings by investing more in venture capital and growth equity funds.
For a 22-year-old starting out on a salary of £35,000 and contributing 8pc into their pension, this could boost their nest egg by almost £68,000 over the course of their lifetime.
Sir Nigel Wilson, chief executive of Legal & General, warned on Monday that London is falling behind rival financial hubs owing to decades of poor performance by overly-regulated pension funds.
Other countries, such as Canada and Australia, have taken a less conservative approach to investing and performed strongly as a result.
Last year, the Canada Pension Plan made a 6.8pc gain on its investment despite turmoil in global markets. By contrast, Nest – one of Britain's biggest schemes, with more than 12m members – fell by 9.5pc.
Wealth manager Quilter estimates that a saver with £100,000 would have been more than £26,000 better off if they were invested in the Canada Pension Plan last year, compared with the biggest fund at Now Pensions, one of Britain’s leading providers, and £16,000 better off compared with Nest.
Pension insiders have argued that much of this disparity is down to British regulations that encourage investment in low-risk but less lucrative bonds.
However, Ms Delfas said that TPR will order trustees to meet high governance and administration standards and put value for pension customers at the top of their priority list.
She said: “Savers deserve more than minimum standards — we are unapologetic about the standards we expect from trustees — savers would expect the people looking after what is for their entire retirement savings to be appropriately skilled and qualified.
“All pension savers deserve value for money, and we support investment in illiquid assets where it is in their interests.
“Trustees have a fiduciary duty to invest in savers’ best interests. We expect them to consider a wide range of investments, which deliver good returns.”
It comes as both Conservative and Labour MPs push pension funds to invest more in British infrastructure projects and the UK stock market, where just 4pc of shares are now owned by UK retirement funds.
Ros Altmann, a former pensions minister, questioned whether fund managers were taking sufficient risk with savers’ money.
She said: “I think there has been an element of over-caution and under-ambition for pension investing.
“Assumptions about investment risk are often based on what has happened in the past, but past years have been distorted by quantitative easing, which means that bonds are now potentially more risky.”
Nigel Peaple, of the PLSA, a trade body that represents Britain’s biggest pension providers, said it was in “intensive discussions” with the Government about ways to improve returns for savers.
He said: “There are ways to improve pensions, like investing in infrastructure and utilities. We are in intensive discussions with our members, government officials and financial services to figure out what can be done on the regulatory and fiscal side to make sure it works for pension funds, savers and the government.”
Sir Steve Webb, a former pensions minister, said that the Government should be focusing on unlocking the value in much larger “defined benefit” pension schemes, which guarantee a set payout in retirement instead of linking returns to the stock market, and are almost all closed to new members.
He said: “The Government has not caught up on the revolution in funding these schemes. They have been scared by BHS, Philip Green and Carillion – but we now have very risk averse regulation, and these pension funds are awash with cash.
“Most of the pension market’s money is in defined benefit now, but the Government is too terrified about funds taking risk in that space.
“But these funds are mostly in surplus now, and not to take investment risk here is a terrible waste of a £1.5 trillion market that is producing terribly low returns.”