According to Murphy Wealth, a common pension mistake could be costing thousands of Britons up to £400,000 in retirement savings. The firm's calculations show that workers on median salaries stand to lose approximately £163,000 from their final pension pots due to the automatic de-risking built into so-called lifestyle pension funds.
For higher earners, the damage is considerably worse, with potential losses exceeding £400,000. The shortfall arises because savers are moving investments away from equities and into lower-returning bonds and cash.
How the shortfall accumulates
A worker earning the UK median salary and paying in the minimum auto-enrolment contributions, roughly £132.80 per month, adjusted for three per cent annual wage inflation, would accumulate close to £395,500 over a 40-year career. This assumes a six per cent annual return, a figure the firm describes as relatively conservative for equities.
Adrian Murphy, the firm's chief executive, argued: "Times have changed, retirement is now a 20 year to 30-year period when a pension needs to keep growing to maintain its longevity, perhaps taking a degree of risk off the table to reduce volatility. Annuities are only the go-to option in very specific circumstances."
Why staying invested matters
He drew a parallel with Warren Buffett, noting that the legendary investor "has famously made 95 per cent of his vast fortune after the age of 65, and the same principle applies here, it's in the later years that compound returns work hardest for you".
Mr Murphy went on and also added: "Moving into cash means you potentially miss out when a few percentage points might mean tens of thousands of pounds."
If you suspect you are in a lifestyle pension fund, check the date it begins to de-risk and carefully consider whether that type of product matches your plans for later life.
