Vanguard launches price war in UK pensions market

Vanguard, the world’s second largest asset manager, has launched a new low-cost retirement advice service for UK investors designed to appeal to millions of savers who lack guidance on pension planning.

Fewer than one in 10 UK adults has received financial advice, a gap that is fuelling fears that old age poverty awaits many workers with inadequate retirement savings that will leave them reliant on meagre state pensions.

Investors with a minimum of £50,000 will be able to obtain personalised retirement saving advice from Vanguard for an all-in annual cost of 0.79 per cent, which includes fund fees, transaction and platform charges. No other fees, such as entry or exit charges, will be applied by Vanguard which has built a reputation as a ferocious price competitor.

Already the largest manager of defined contribution (DC) pension assets in the US, Vanguard intends to start a price war in the UK retirement advice market.

“The cost of advice is a barrier to many UK investors achieving their goal of a comfortable retirement. Annual fees for retirement savers north of 2 per cent are not uncommon in the UK. With people living and working longer, these costs can make a considerable dent on their hard-earned retirement savings,” said Sean Hagerty, head of Vanguard’s business in Europe. 

He added that Vanguard would also roll out a similar pension advice service in Germany and other European markets “in time”.

Vanguard arrived in the UK in 2009 and has accumulated more than 250,000 UK clients, adding 79,000 new customers so far this year. It has built a European business with assets of $270bn with the cut-throat price competition that fuelled its US growth.

The Vanguard Personal Financial Planning service will invest in a diversified portfolio of equity and fixed income tracker funds which will rebalance regularly and reduce risk approaching an investor’s retirement date.

Clients with retirement savings of more than £100,000 will have access to a team of financial planners that will provide advice via the phone or video. Investors with more than £750,000 will be supported by a dedicated financial planner. More staff will join the financial planning team led by James Norton as the pension advice service accumulates assets.

Haggerty cautioned that pension savers should not expect the same returns from equities and bonds in future as those achieved historically, making the control of fees and charges even more imperative.

A £250,000 portfolio that delivers total returns of 5 per cent a year would earn £275,571 less over 30 years if an investor paid annual fees of 2 per cent instead of 0.79 per cent, according to Vanguard.

“Our goal is to ensure that investors keep more of what they earn,” said Haggerty.

Two-thirds of UK adults saving into a DC pension scheme are not aware of any charges, according to a survey of 2,679 participants by the Financial Conduct Authority. The regulator also noted that 42 per cent of adults who had received advice during the previous 12 months said they had thought “a lot” about how much they should contribute to their pension, compared with just 18 per cent who had not received any help.

Around one in 10 UK adults saving for a pension stopped or paused contributions last year. The coronavirus pandemic has also forced many people into early retirement due to job losses, sickness or the need to look after other family members. Around 58 per cent of the people who retired between March and October last year did so earlier than they had planned, said the FCA.