More than a billion pounds of retirement savings could be lost due to savers transferring to higher-charging pensions, according to the People’s Partnership.
The People’s Pension has released a new Pension Transfers Loss Index, which shows that UK savers might lose £1.2 billion in pension transfers in just one year. Market activity for unadvised DC transfers has surged by more than 50 per cent in four years, with expected losses growing from £792 million in 2020 to £1.2 billion in 2023.
This problem could grow when pension dashboards go online, since consumers may migrate from lower-cost employer pensions that are capped to higher-cost, unconstrained retail schemes.
People’s Partnership also found that individuals who switch to higher-cost retail options may lose up to 20 per cent of their pension pot by retirement, perhaps forcing them to work at least three years longer to compensate.
People’s Partnership is pushing providers to communicate important information about higher-charging products. It has developed a Pension Overview website to showcase fees and investment performance, and they’re encouraging other providers to do the same.
People’s Partnership CEO Patrick Heath-Lay says: “It’s incredibly worrying that our modelling shows more than a billion pounds is potentially lost due to people transferring to higher charging pension schemes. Given market activity around transfers is escalating, this could easily cost consumers billions a year more once commercial pension dashboards are introduced.
“With adequacy of saving levels still a significant factor to future pension policy success this turbo charging of the transfer market will ultimately be to the consumer’s detriment, meaning we need to act now to ensure that people have the information they need to compare their options when considering a transfer.
“The FCA has a new value for money framework for workplace pension schemes high on its agenda. We believe this framework should apply to the whole market, rather than just workplace pensions.”