Pension savers are losing some £1.7 billion a year during their pension transition into and near retirement, a new study by HSBC Tomorrow Master Trust has shown.
The report ‘Converting pension pots into retirement incomes: Are current roads delivering member value?’ found pension scheme members are losing around £1.7 billion a year due to choosing costly pathways to access their money.
These include withdrawing pension funds as a single lump sum when multiple withdrawals might reduce the overall tax payment; paying for annual advice when fund size might suggest this wasn’t always needed; and moving pension pots to another provider to access a drawdown product, which can include transfer fees and different annual management charges.
The most recent FCA data showed that 705,666 people accessed their pension pots for the first time in 2020/21, with more than half (56%) taken as a single lump sum. Out of these, over 10,000 were made without financial advice being taken.
Meanwhile, drawdown purchases saw an increase of 24% and over half (54%) of those worth under £50,000 took place with financial advice provided to the savers.
The research, commissioned by HSBC Tomorrow Master Trust and undertaken by Professor Andrew Clare of Bayes Business School in association with Hymans Robertson, focuses on the current dilemma of most single employer, contract and master trust schemes in the UK not offering in-scheme retirement solutions, which forces members to go it alone and seek out third-party providers to convert their pension pot into an income.
Professor Andrew Clare, professor of Asset Management at Bayes Business School said: “As members transition into retirement, current pathways can erode the real value of pension savings that took a lifetime to accumulate. And when schemes abandon them at this critical time in their lives, they are exposed to risks that they are often not equipped to face alone.”
HSBC Tomorrow Master Trust CEO Alison Hatcher, added: “Pension savers need good value solutions that can fit into their lives and work for them. The friction, cost, and risk that members face as they enter retirement for the first time is a significant issue that is often forgotten or ignored. There is a major real-term impact that members are exposed to during this crucial moment in their lives and we need to find ways to fix and enhance value in this area.”
“Our vision is focused on innovation with an absolute commitment to serve the evolving needs of employers, pension savers and retired members. Part of that includes a joined-up financial wellbeing and pensions journey for members, including a holistic retirement savings and benefits platform which is digital but backed up by personalised support.”
