One of the most senior figures in the fund management industry has broken ranks and admitted that up to 40 per cent of private-sector pension pots are swallowed up in fees.

David Pitt-Watson, the founder and former chairman of Hermes Equity, made the estimate in a submission to the Royal Society for the Encouragement of the Arts, Manufactures and Commerce (RSA).

It was contained in a report from the RSA lambasting the pensions industry for high charges, opacity and a lack of accountability. “Private pension fund members are almost universally detached from the management of their money and, when they do try to discover more, they find fund managers unaccountable and institutions opaque,” it said.

The RSA called for a sharp reduction in annual fees from the 1.5 per cent it said was typically payable in Britain to the 0.5 per cent charged in Sweden and the Netherlands.

It also criticised the process of “churning”, under which pension plan portfolios are constantly turned over. Less switching of investments could add as much as 20 per cent to pension values, it said, and churning appeared to be getting much more common. Annual turnover of British equities was equivalent to 10 per cent of GDP in 1965 and 200 per cent of GDP by 2004.

Mr Pitt-Watson is quoted in the report saying: “A pension lasts 50 years. So an average pound invested in the pension is there for 25 years; 1.5 per cent is paid in fees on the balance of the fund every year; 25 times 1.5 per cent is 37.5 per cent, or approximately 40 per cent.”

He told The Times: “Just do the maths and it comes to about 40 per cent. Pension fund members would be 66 per cent better off if they paid no fees at all.”

He said that the 1.5 per cent annual charge was paid by consumers buying private pensions from IFAs. Members of employer-sponsored defined contribution schemes typically paid about 0.7 per cent.The findings come after one of the worst years for defined contribution fund members in decades and as the Government admits that it has overpaid 95,000 pensioners for years.