The numbers show that reducing costs like investment and product charges by just half a per cent a year can add thousands to a pension pot.
Last month AJ Bell highlighted that you would need to build a £130,000 savings pot to top up the new proposed state pension to the equivalent of a minimum wage income. The new figures show how savers can plug any gap.
For every £100 saved (gross) into a Sippdeal SIPP over 30 years, investors achieving a 5% pa return and paying charges of 1% pa can hope to generate a pension pot of £68,100. By reducing charges by 0.5% the figure rises by over £6,000 to £74,500.
AJ Bell Marketing Director Billy Mackay said, “It’s essential that investors set themselves realistic targets and understand clearly how much needs to be put away to achieve those targets. But they need to be looking at costs too.
“Stakeholder pension charges are set at 1.5% for the first ten years and this is seen by many as low charging, but these days it’s possible to beat those charges significantly using online platforms. A typical Sippdeal client saving £300 a month over 30 years and keeping costs down to 0.5% pa – which is entirely achievable – could see their pension pot rise to £223,000. The cost savings have contributed nearly £20,000 to that.”
Savers are reminded that these figures are gross – basic rate taxpayers only need to contribute £80 for every £100 contributed to their pension fund; the net cost to higher rate taxpayers is just £60 (after they reclaim additional tax due).
Mackay added: “The amount needed to fund a comfortable retirement can seem daunting but by investing as much as you can for as long as you can and cutting costs it is surprising how the money can add up.”
Based on 5% p.a. investment growth and Sippdeal SIPP charges.
Pension contribution is £100 gross (cost to individual of between £50 and £80 depending on tax rate).