Investment - Articles - Tax optimised fund wrapper may lead to wealthier retirement

 Over the course of a DC savings journey, this could reduce an individual’s ultimate retirement pot by 5%. For example, a saver targeting a pot of £250,000 over 30 years might need to save an additional £12,500 if saving through an OEIC, which are more tax opaque, than if they were saving through a more tax efficient Life Fund or Tax Transparent Fund with similar costs.

 Douglas Anderson, Partner and Founder of Life and Financial Services at Hymans Robertson explains this further: “The fund management industry appears to be at a turning-point when it comes to wrappers and we’re now seeing a more widespread appreciation of the advantages that alternative fund wrappers can offer over more traditional versions. Trustees and governance committee seeking simplicity and clarity will value tax transparent funds for their ability to offer greater tax efficiency benefits.

 “Every pension scheme has its own goals and targets and Trustees should ensure that whichever wrapper they select is the best for both their members and the scheme as a whole. However, it is important that Schemes ensure they are not falling into this avoidable tax drag which can significantly impact an individual’s final pension pot over a saver’s lifetime.”

 Gavin Lewis, Head of Institutional UK, Vanguard adds: “Failing to deliver tax benefits to retirement savers is equivalent to an unnecessary cost. These costs have a material impact on people’s lives. A 5% shortfall in retirement savings may mean the need to delaying retirement, or to accept a lower quality of life in retirement.

 “Vehicles offering retirement savers the dual advantages of tax-efficiency and ring-fencing of their assets, give investors a better chance of successful retirement outcomes.”