New research reveals that state pensioners and retired savers are losing billions of pounds each year by unknowingly transferring their pensions to schemes with higher charges.
The Peopleâs Partnership, a pension provider, has warned that hidden fees and complex charges on pension funds are eroding retirement savings, with some savers losing up to a fifth of their retirement pot. The issue is particularly concerning as the number of people moving their pension pots reached a record high of 1.2 million last year.
Shockingly, one in four private sector workers are transferring their pensions to schemes with higher fees each year, resulting in tens of thousands of individuals across the UK potentially losing significant sums of money in the long run.
The problem arises when individuals move their pensions from schemes with low fees, often as low as 0.2% per year, to schemes with significantly higher charges, reaching as much as 0.9% or even 1% per year. The Peopleâs Partnership has highlighted that transferring a £50,000 pension pot from a provider charging 0.4% to one charging 0.75% could lead to a shortfall of over £70,000 over a 30-year career.
To illustrate the impact of these fees, consider a £30,000 pension pot: a 1% annual management fee would cost £300 per year, accumulating to £1,500 in fees over just five years. In comparison, a lower fee of 0.25% would result in a yearly cost of £75, amounting to just £375 over the same period, a difference of £1,175.
Patrick Heath-Lay, CEO of The Peopleâs Partnership, expressed concern about these findings, stating: "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 the increasing activity around pension transfers, this could easily cost consumers billions more per year once pension dashboards are introduced. We need to act now to ensure that people have the information they need to compare their options when considering a transfer."
The alarming figures serve as a stark reminder of the importance of researching and understanding the fees associated with any pension scheme before making a transfer. Individuals should carefully consider the long-term impact of high fees on their retirement savings and seek professional advice if needed.