Poor decisions and switching to high-cost pensions could cost savers £1.2bn a year, according to People’s Partnership.
The findings come from workplace pension provider People’s Partnership’s new Pension Transfers Loss Index, which showed that market activity for unadvised defined contribution (DC) transfers has increased by more than 50% in just four years.
The predicted loss has risen from £792m in 2020 to £1.2bn in 2023.
The study was based on transfers out of The People’s Pension master trust and compared this to data from the Financial Conduct Authority (FCA).
Patrick Heath-Lay, chief executive officer at 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.”
Heath-Lay urged the FCA and the Pensions Regulator to extend their Value for Money Framework to the whole of the pensions market to ensure that savers were not affected by high-cost, poor value pension products.
The research found that almost three quarters (72%) of people who had transferred a DC pension in the past two years did not know exactly what the fees were for their new pension. In addition, 11% did not think their new pension had any fees or charges.
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.
People’s Partnership reported that individuals who transfer to higher cost options could be missing out on as much as 20% of their pension pot by the time they retire – meaning they could have to work at least three years longer to plug the finance gap.
