Now Pensions has launched its Auto Enrolment (AE) Cost Comparison Index to illustrate the long-term implications of fees charged by pension providers.

The fund, which 1.7 million workers use to save for retirement, has calculated the charges over a 20-year period for members who pay monthly contributions and those who make a single transfer in from another pension pot.

Since 2012, more than 10 million people have been auto enrolled into a workplace pension scheme.

While a recent increase in auto-enrolment contribution rates means employers and employees are now paying in more, long-term charges levied by pension providers could potentially erode their retirement savings.

The AE Cost Comparison Index revealed workers earning £28,000 and paying a monthly contribution, could be hit with fees up to £7,000 in two decades – significantly cutting their pension pot.

Even those making a one-off transfer of £28,000 in from another fund could face up to £16,000 of charges.

Adrian Boulding, director of policy at Now Pensions, said: “The AE Cost Comparison Index clearly lays out the devastating effect high fees can have on retirement savings.

“We hope our analysis will encourage employees to shop around for the AE provider that suits them best and look at fee structures over the long-term to ensure they are getting the most out of their hard-earned money.

“We also recommend that all savers consolidate their funds, to benefit from economies of scale where providers offer these.

“Transparency and value of service are at the heart of Now Pensions and we spent a lot of time thinking about how to structure our charges so that they are simple and easy to understand for our members.

“We decided to combine a low management charge with a small monthly admin fee to ensure members aren’t being disproportionally disadvantaged as their savings grow.

“Our new Cost Comparison Index conclusively shows that our charging structure has a significantly smaller impact on a pension pot than a blunt single charge model.”