UK pension savers could be losing as much as £1.2bn a year as a result of transferring to higher-charging pensions, research from People’s Partnership has revealed.

The provider's projections showed that market activity for unadvised defined contribution (DC) transfers has increased by more than 50 per cent in the past four years.

The predicted loss has risen in line with this, increasing from £792m in 2020 to £1.2bn in 2023.

In addition to this, the research showed that individuals who transfer successive lower-charging workplace pensions into a higher-cost retail option could be missing out on as much as 20 per cent of their pension pot by the time they retire, which could mean having to work an additional three years or longer.

This is a problem that could be set to worsen, as People’s Partnership warned that this could become a "multi-billion-pound" issue for consumers once pensions dashboards go live in a few years.

It also highlighted the challenges savers face to differentiate between low and high-charging pension options, with previous research revealing that nearly three quarters (72 per cent) of people who had transferred a DC pension in the past two years didn’t know exactly what the fees were for their new pension.

Furthermore, just over one in 10 (11 per cent) didn’t think their new pension had any fees or charges.

Given these concerns, People's Partnership called for providers to be required to disclose prominently key information to consumers, ensuring they are aware when they are moving to higher-charging products.

It also encouraged other providers to be more transparent and give savers clear information, having recently launched its own pensions overview webpage, which highlights key considerations to be made before transferring a pension, including how much people are charged and recent investment performance.

People’s Partnership CEO, Patrick Heath-Lay, 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 turbocharging 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 Financial Conduct Authority (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.”

People's Partnership's 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.

This article was originally published on our sister website, Pensions Age.

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