Workers could be better off by ‘tens of thousands’ of pounds if they switch to a low-cost platform, according to research from consumer investment platform interactive investor.

The research compares pension costs for specialist investment platforms with those for traditional life companies like Aviva, Scottish Widows and Standard Life.

The comparisons look at the example of a 38-year-old with an accumulated pension pot of £100,000 contributing £10,000 a year into their pension, invested in funds, for the following 30 years and retiring at 68.

They compare the impact of costs on the portfolio value at retirement, with a difference of almost £100,000 between the most expensive life company pension and interactive investor.

Whilst switching between investment platforms is straightforward, when it comes to the savings to be had from switching from a life company pension, Moira O’Neill, head of personal finance, interactive investor, cautions: “Everyone’s individual portfolios and circumstances will be different so it’s important to remember that these scenarios are a guide only. Our comparisons assume life company customers are engaged investors that have chosen not to go into lower cost passive funds.

“Even so, if you have your workplace pension with one of these life companies, you might well find that you are better off staying put. For one thing, the charges on workplace pensions are usually considerably lower than the assumptions made here, and most importantly you might lose your employer’s pension contribution, which is too valuable to jeopardise – so you should always check this. But if you are an engaged investor who has been actively choosing your own funds, it could well pay to shop around.”

Most expensive

The table below shows the potential cost savings of switching to interactive investor for a 38-year-old with an accumulated pension pot of £100,000 contributing £10,000 a year into their pension, invested in funds, for the following 30 years and retiring at 68.

Moira O’Neill, head of personal finance, interactive investor, continues: “Where you are best served as a pension saver depends on a lot of factors, including how much you have to start with. The comparisons we’ve commissioned put specialist investment platforms toe to toe against the life insurance companies.

“Before switching out of any life company scheme check that you are not losing any benefits. For example, some older life company pension plans, especially those you may have accessed through your workplace, come with an option to withdraw more than 25% as a tax-free cash lump sum or with generous guaranteed annuity rates. But for many there are potentially big savings to be made.”

A 100% fund’s portfolio with an ongoing charge (OCF) of 0.66%

Further reading

Adviser platform consolidation

FCA announces review of retirement advice

2020 – 2030: The decade of retirement