Mutual fund fees eating into our retirement security, so why do we pay them?

As many Canadians get serious about making their RRSP investments ahead of the looming deadline, a timely reminder, the fees we pay on some financial products can seriously erode the returns we may make.

And in some cases, we could avoid those fees by choosing an investment that will achieve the same goals, at a fraction of the cost to us...so why don't we?  It's a mystery...but one thing is clear - Canadians are paying more than we could to make investments.

— Amanda Lang

While any sort of saving for retirement might be beneficial, not all investment vehicles are created equal.

According to the Canadian Centre for Policy Alternatives, those with workplace pensions will do significantly better in retirement than those who invest only in mutual funds.

It found workers may have to work an extra 11 years for mutual funds to match the savings of a workplace pension. Or if they retired at the same age, investors with just mutual funds will have 40 percent less money.

The reason is simple — management fees on mutual funds eat into profit. On average, fees are about two per cent for mutual funds, but less than half a percent for a pension. Not a big difference in a given year, but compounded over your career, it really adds up.

The benefits of mutual funds have long been touted, professional management of your money for a small fee. That fee is just a bit more than two per cent on average. Workplace pensions charge a fee less than half a percent on average. *(0.38%)

The number of Canadians covered by workplace pensions however is falling. Since 1977 it has fallen from 43 per cent of workers to 27 per cent today.And as you can see, even fewer have the gold-plated 'defined benefit' kind.

Amanda Lang speaks to Neil Gross, executive director of the Canadian Foundation for Advancement of Investor Rights.