The average UK wealth manager charges 1.8% a year. Lower fees offered by some challenger brands could considerably extend the life of a pension pot.
Research by wealth manager Netwealth Investments shows that a saver in mid-career who invests a £250,000 pot at age 45, goes on to contribute a total of £700 gross a month until age 65 and then retires with an income of £35,000 a year, might see the money last 24 years with a traditional wealth manager. However, using a more modern, “no-frills” investment manager such as Netwealth, with all-in fees around 0.8% per annum, they could secure their income for 40 years – or 16 years more.
Older investors also can benefit significantly from lower fees and achieve a longer retirement in comfort. For instance, an investor aged 65, with a portfolio valued at £650,000 who chose to draw down £35,000 a year, could expect to see their money last 24 years. But by selecting a more cost-effective wealth management service, the investor would be able to make their money last 28 years.
In an age of greater longevity, this is critical. “While we’re projecting life expectancy to increase generation by generation fairly substantially, people still tend to assume they will live roughly as long as their parents or grandparents.” says Chris Curry, Director of the Pensions Policy Institute (PPI).
Charlotte Ransom, Chief Executive of Netwealth, said: “For an inexperienced investor, a 1% difference in charges might appear to be a small number, but it’s quite an eye-opener when people realise it could ensure an extra 10 years or more of comfortable retirement. “
“Clients are beginning to see that the investment services offered by more modern providers can provide substantially better value. What’s not yet widely recognised is the degree to which these can affect the lifespan of the pension pot,” she said.
Ransom also commented: “Challenger brands such as Netwealth are substantially lower cost and offer a combination of qualified advisers and investment managers supported by user-friendly technology. We’ve dispensed with the unnecessary frills
:– wood-panelled offices, salespeople and golf days – which do so much to drive up traditional providers’ costs.”