Pension savers could be losing £1.7 billion from their pension pots due to poorly informed pension transfer decisions made in the year to 30 June, warns People’s Pension.
The figure is 42% higher than the £1.2 billion at risk from decisions made in 2023, the workplace pension provider said.
As pension transfer activity continues to rise, the associated risk is growing at an average rate of 22% per year. Based on current trends, People’s Pension forecasts that uninformed transfers will become a multi-billion pound problem by 2027.
Previous research shows pension savers often make pension transfer decisions without fully understanding the financial consequences. With many struggling to find the right information to accurately compare schemes, almost all (96%) pension savers think pension providers should be required to tell people about the impact of the charges they will pay if they transfer a pension to a new provider.
The research also found that half (53%) of pension savers don’t fully grasp how transfers work and a fifth (20%) think they are a gamble. Two thirds (65%) say they need the help of a professional to consolidate a pension.
People’s Pension has called for greater collaboration from the pensions industry to enable people to compare their pensions based on the information that matters most. Its five-point plan includes calls to ban transfer incentives and industry collaboration to create a consumer-facing “value for money” framework which must be clearly displayed on commercial pension dashboards when they launch.
Patrick Heath-Lay, CEO of People’s Pension, said: “It’s alarming to see such a rapid escalation of the pension transfers problem, which is fast becoming a crisis, especially when you consider the significant impact on people’s retirement savings. Savers risk ending up with thousands of pounds less and working for years more. And with massive rises in transfer volumes expected when pensions dashboards come into effect, it is essential that the industry acts now to address this issue.
“With the Government’s pension review focussing on value only in the workplace pension market and a new commission looking at adequacy of saving, it is appalling to see the amount of value being needlessly lost due to the vulnerability of consumers.”
Heath-Lay added: “More onus must be put on providers to flag to members when they are transferring to higher charging schemes to ensure members understand the long-term implications. With so many people under pensioned it is unacceptable for savers to be losing out by making uninformed decisions like this.”
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