Older personal pensions risk becoming poor value for money, new research published by the Institute for Fiscal Studies has shown.
The research, funded by the Economic and Social Research Council, found that many deferred pensions held by over-50s are in schemes with charges that are high relative to current market standard.
Charges have fallen over time yet deferred pensions do not reflect these changing market conditions, leaving some savers set to lose thousands of pounds if they do not move their pensions, the IFS warned.
According to the findings, the average annual fee for deferred pensions taken out in the 1990s is above 1.1% of fund value, compared with 0.9% for pensions taken out in the 2000s and 0.8% for pensions taken out in the 2010s.
Four fifths of pensions started in 2013 have a charge of 0.75% or less, compared with just a quarter of pensions started in 2003 and one in nine of the pensions started in 1993.
For a 50 year old with a pot of £21,000, the difference between a 1.1% and 0.8% charge would amount to a difference of around £2,400 at age 67, the IFS said.
In addition, older deferred pensions may not be invested in a way that aligns with people’s risk profile. In newer pensions, there is a decline in the share invested in equities at older worker ages but there is no such similar pattern among pensions taken out longer ago.
Kate Ogden, research economist at IFS, said: “It is vital that people get the most out of the retirement saving they have done over their working lives. This won’t happen automatically. Older personal pensions risk becoming poor value for money. The fees charged are often higher than those on pensions taken out more recently. In addition, how they are invested can become less appropriate as individual circumstances change.
“Many would benefit from taking active decisions over their past pensions, and this needs to be made easier to do. But greater individual engagement will never completely fix this issue, and policymakers need to consider wider initiatives to encourage value for money in older pensions.”
