Pension fund savers switching out of their default funds and making their own investment decisions could face a cut in their final pot value of up to £247,000, research has found.
According to a report from The People's Pension and State Street Global Advisors (SSGA), inexperienced savers choosing their own funds could lose out on more than 50% of their possible pot.
The report, Workplace Defaults: Better Member Outcomes, looks at how several behavioural biases could impact someone's pot over the course of 33 years, compared to a saver who remains in a well-run default and amasses a pot of £430,000 over the same period.
One hypothetical saver, "Cautious Colin", is risk-averse and invests in a cash fund, missing out on nearly £247,000. Meanwhile, "Performance Chasing Patricia" buys into a strongly performing fund but sells out when performance falls and then loses out on over £173,000.
Similarly, "Eggs in One Basket Elliot" fails to diversify and accumulates £31,000 less than the default fund saver, while "Forgetful Fiona" is initially an active investor but fails to keep her portfolio under her review or switch to lower-risk funds as she approaches retirement, losing out on £31,000.
The report said, however, that most people were "invested into well-managed and cost-effective default funds" that would typically do better than these DIY approaches.
The People's Pension chief investment officer Nico Aspinall said: "Most people enrolled into a workplace pension stay invested in a default fund which, as this study confirms, is by far the simplest path to achieving good returns.
"There will undoubtedly be some who will want to take investment decisions and try to quickly make up the losses from this year's fall in markets, but this research shows that DIY investment is fraught with dangers."
Previous Financial Conduct Authority research found that 78% of savers were unaware that a fee was taken from their defined contribution (DC) pot, while retail investors can face a charge double that experienced by workplace pension savers.
SSGA head of pensions and retirement strategy Alistair Byrne said: "Investment decisions are complex and most busy pension savers can't give them the time and attention they deserve. Investing in the default strategy means putting your future finances into well-governed and efficiently scaled products managed by experienced professionals."
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