Millions of pensions stuck in the slow lane People saving for retirement through staff pensions are potentially missing out on tens of thousands of pounds, by leaving contributions in "one-size-fits-all" default funds, new research has found. Across the country, millions of workers pay into defined contribution (DC) pensions, where savings are invested in the stock market via funds. How these funds perform is therefore vital, as it determines the level of pension income that can be secured at retirement - typically by using the fund value to buy an annuity. With annuity rates at record lows, pensioners are under more pressure than ever to build up the largest possible sums. IN Current Issue But a study carried out by Standard Life, the pension provider, has revealed that most savers do not choose a fund that to match their objectives - instead leaving their savings in the default fund. In its survey of DC pension savers, Standard Life found that two-thirds of respondents had not changed, or considered changing, the funds they were investing in over the previous three years - and nearly one in nine people did not even know, or recall, their fund choice. In spite of this, half still felt confident that they were investing in the right funds. "Typically 80-90 per cent of workers are in default funds," said Jamie Jenkins, head of workplace strategy at Standard Life. The survey showed that people are not asking whether the investment fund is right for them. It is very important to ask whether you are taking enough risk or not enough. When joining a workplace scheme, members will have all their contributions invested in the default fund, unless they actively choose other options. Many default funds adopt a "Balanced Managed" strategy which typically involves holding 50-60 per cent in UK equities; 20-30 per cent in overseas equities; 10-20 per cent in bonds; and up to 5 per cent in cash. But performance within the Balance Managed fund sector can vary greatly, with 10-year annualised returns, after charges, ranging from 2.6-8.5 per cent per year. Default fund comparison Fund size £m 10-year performance growth % Annual charge % Axa Framlington Managed Balanced Standard Life Managed One ABI Mixed Investment 40%-85% Shares Sector* Scottish Widows Mixed Scottish Equitable Mixed Aviva Mixed Investment (40-85% Shares) Friends Provident Managed Sector average; Source: Hargreaves Lansdown A default fund may also operate a risk management technique known as "lifestyling," where more of the fund holdings are automatically shifted into lower volatility assets, such as bonds or cash, as they approach their target retirement date. However, this will be done regardless of conditions in equity and bond markets at the time. "Most default funds operate on the principle that members have to do very little," says Raj Mody, pension adviser with PwC. But while it might sound appealing, don't assume that a default fund is right for you. Advisers say this passive approach could prove costly, as most default funds are middle-of-the-road performers. Laith Khalaf, of Hargreaves Lansdown, said: "Tens of billions of pounds are held in distinctly average funds, or worse, usually because investors have been defaulted into them. By making better investment decisions, pension savers can make a substantial difference to their comfort in retirement. In a recent Treasury submission, Hargreaves argued that someone in their mid-20s who is willing to tolerate price volatility in their pension savings, and take an active interest in where their money is invested, is likely to enjoy better returns than someone who simply goes into a default fund and stays there for 40 years. It contrasted investors who made regular savings into an emerging market equity fund with those who invested in UK-dominated multi-asset balanced managed funds - often the default choice. Adviser Laith Khalaf gave the following advice: ●Review your pension investments regularly - even good funds can go off the boil; ●Check whether the asset mix of the fund is right for you - younger investors might consider a more adventurous fund, older investors a more conservative one; ●Consider the quality of your fund - if you see better investment funds you may be able to switch into them, otherwise you might consider a transfer to a provider with a wider choice of funds.