People could be left more than £70,000 poorer in retirement because they do not understand charges when transferring their pension, according to research from People’s Partnership.
The research found nearly three quarters of people who had recently transferred their pension (72 per cent) did not know exactly what the fees for their old pensions were, or what they were being charged for their new one.
Meanwhile one in 10 (11 per cent) did not think their new pension had any fees or charges.
Patrick Heath-Lay, chief executive officer at People’s Partnership, said: “While there are many factors that can make a pension attractive, the two fundamental aspects are investment returns and charges.
“Unfortunately, very few people know exactly what they are being charged for their pensions and they are being let down by an industry that doesn’t make this information easy to find or understand.
“If people can’t make an informed decision about the value they are being offered by different providers, they risk losing thousands of pounds from their retirement pots. This lack of transparency is an enormous issue that pensions providers have to address.”
Analysis by the firm found that for a 30-year-old earning £30,000, moving a £10,000 pension pot from a provider charging 0.4 per cent to one charging 0.75 per cent, would leave them £32,894 worse off when they retired at 67.
If they moved a £50,000 pot, they would have £59,523 less to live on in retirement.
Additionally, if the same person was earning £45,000 and moved a £50,000 pension, they would be £72,689 worse off in retirement.
People’s Partnership said the pension industry needs to be more transparent and should help savers understand key information when transferring their pension, to prevent them from making detrimental financial decisions for their future.
The research, which was conducted in November and December 2023 on 1,000 people who had consolidated their defined contribution pensions, found only half of respondents said it was easy to find information on fees and charges from providers.
The firm said fees are not anywhere near as important a consideration as they should be when transferring a pension, and that people don not appreciate how seemingly small differences in costs can lead to significant differences in real terms.
Heath-Lay said: “Our research shows the real-world impact of small differences in percentages are incredibly hard to grasp, so the onus is on the pension industry to make sure consumers understand what they are being charged.
“We are taking direct action to provide our members with more guidance through the transfer process and are creating tools that will support them to make informed decisions that are in their best interests.
“We passionately believe that there must be an obligation on pension providers to give clearer information to those savers who are considering transferring and the industry must move to provide comparable consumer focused value metrics.”
sonia.rach@ft.com
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