"Given market activity around transfers is escalating, this could easily cost consumers billions a year more once commercial pension dashboards are introduced."
- Patrick Heath-Lay, CEO of the People’s Partnership
More than a billion pounds of retirement savings is predicted to be lost due to savers transferring to higher charging pensions, according to new analysis from workplace pension provider, People’s Partnership.
The provider of The People’s Pension has launched a new Pension Transfers Loss Index, which shows that UK savers could lose £1.2bn as a result of decisions made about pension transfers in just one year. According to its projections, market activity for unadvised DC transfers has increased by more than 50% in just four years and correspondingly, the predicted loss is up from £792m in 2020 to £1.2bn in 2023.
People’s Partnership is warning that this could become a multi-billion-pound issue for consumers once pensions dashboards go live in a few years’ time. The index is based on movements where people switch from lower charging workplace pensions, which are subject to a charge cap, to higher charging, uncapped, retail schemes, for their lifetime pension saving journey.
The provider has found that individuals who transfer successive lower charging workplace pensions into a higher cost retail option could be missing out on as much as 20% of their pension pot by the time they retire. This could mean having to work at least three years or longer in order to plug the gap caused by their transfer decision.
The issue is further illustrated by the challenges people face to differentiate between low and high-charging pension options. The research found that nearly three quarters (72%) of people who had transferred a defined contribution pension in the past two years didn’t know exactly what the fees were for their new pension. One in 10 (11%) didn’t think their new pension had any fees or charges.
The provider is now calling on providers to be compelled to disclose key information to consumers, ensuring they are aware when they are moving to higher charging products.
Patrick Heath-Lay, CEO of the People’s Partnership, said: “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.”
