- Hidden fees and complicated charges on pension funds impact retirement pots
Savers are losing more than £1.2billion from their retirement pots each year by inadvertently moving their pensions out of their workplace schemes into ones with higher charges, new research finds.
Hidden fees and complicated charges on pension funds are wiping up to a fifth off retirement savings, provider People’s Partnership warns.
The number of savers moving their pension pots hit a record high of 1.2million last year.
Be careful: Hidden fees and complicated charges on pension funds are wiping up to a fifth off retirement savings, provider People’s Partnership warns
Most believe they are doing the right thing by merging their retirement savings into one place to make it easier to keep track of and manage.
But the People’s Partnership, which manages the pensions of one in four workers in the private sector, worth a total £28billion, warns that tens of thousands of savers are moving their pensions into higher fee schemes each year.
They may have to work at least three extra years to plug the gap caused by their transfer decision, it adds.
The number of people moving their pension out of their workplace pension has jumped by 50 per cent in the past four years, according to the pension group’s projections based on its own figures and data from the City regulator.
This pension mistake could compound an already worsening outlook for future pensioners.
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On Tuesday, the pensions industry warned of a looming retirement crisis.
About a million more people than a year ago are at risk of falling short of having a minimum standard of living in retirement, a report by provider Scottish Widows has found.
The People’s Partnership says workers are moving their pensions out of its schemes — which have fees as low as 0.2 per cent a year on older investors — to ones charging as much as 0.9 per cent or even 1 per cent a year.
Since 2015, charges on default workplace pensions, where employees are automatically enrolled, have been capped at 0.75 per cent.
However, independent pension groups where savers can transfer their money can charge more.
Hidden charges in pension transfers can wreak havoc on retirement savings.
A seemingly small difference in fees can cost tens of thousands of pounds.
For example, transferring a £50,000 pension pot from a provider charging 0.4 per cent to one charging 0.75 per cent could result in a shortfall of more than £70,000 over a 30-year career.
Savers may not realise that they are moving their pots to more expensive options as pension charges are often complex, or poorly explained, and so can be difficult for the average saver to weigh up.
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