The government is considering a cap on the fees that pension providers can charge as a way of ensuring that millions of people saving through workplace schemes get value for money.
It says the difference between one percentage point in such fees can leave savers tens of thousands of pound worse off.
In September, the Office of Fair Trading (OFT) published a report on the defined contribution (DC) workplace pensions market, to look at whether such schemes offer value for money.
It included recommendations to shake up the pensions market to ensure that up to nine million people who will be saving into workplace schemes in the coming years do not sink their money into rip-off schemes.
What is a defined contribution pension scheme?
Defined contribution pensions build up a pension fund using your contributions and your employer's contributions as well as investment returns and tax relief.
If you are a member of the scheme through your workplace, then your employer should deduct contributions from your salary before it is taxed.
However, if you have set up the scheme by yourself, then you have to arrange the contributions.
The fund is usually invested in stocks and shares with the aim of increasing the sum before your retirement.
The pension sum you will receive will depend on how much you and your employer pay into the fund and how well the investments have performed.
How much difference do the numbers make?
The OFT is concerned over the variation in the amount pension savers get charged.
Financial experts Hargreaves Landsdown researched the differences they could face.
On an average salary, saving over twenty years with a five per cent return and wages growing at two percent in real terms:
- A saver in a pension scheme that charges 0.5% would end up with a pot of £96,360
- A saver in a scheme that charges 1% would end up with £86,480
- A saver in a scheme that charges 2.3% would end up with just £75,370
As the figures suggest, savers could be nearly £20,000 worse off if they are signed up to one of the more expensive pension schemes.
What help is there for savers?
The Money Advice Service have this advice for people wishing to save for their retirement:
- Invest for the long term: do not shy away from investing in shares
- Diversify: spread your money to avoid putting 'all your eggs in one basket'
- Check fees and charges: only choose funds that have competitive charges
- Regularly review your investment choices: it is good practice to check your investment choices yearly
The Pensions Advisory Service have a number of online tools to help people make decisions about saving for retirement which are available on their website.
The organisation advises individuals concerned about their personal pension situation to give their helpline a call to discuss their options with an independent pensions expert.
Anyone who wishes to speak to an independent pensions expert can call 0845 601 2923 or visit the Pensions Advisory Service website.