Pensioners who have worked for 30 years could be missing out on a £70,000 increase. New research indicates that state pensioners are losing over £1.2billion each year by transferring their pensions from workplace schemes to those with higher charges.
Hidden Fees in Pension Funds Depleting State Pensioners' Savings
According to People's Partnership, hidden fees and complex charges on pension funds are reducing state pensioners' savings by up to a fifth.
Last year, a record 1.2 million savers moved their pension pots. Every year, one in four private sector workers in the UK transfers their pension into schemes with higher fees, affecting tens of thousands of people.
Workers are transferring their pensions from schemes with very low fees of around 0.2% annually for older accounts, to those with much higher fees of up to 1% a year.
Pension Fee Difference Could Result in £1,175 in Savings
This change could cost a lot of money; transferring a £50,000 pension from a provider with a 0.4% fee to one charging 0.75% might result in a loss of over £70,000 over time.
If you have an investment worth £30,000, and are charged a 1% annual management fee, the cost would be £300 per year. Over a period of five years, this amounts to a total of £1,500 in fees. In contrast, if the fee were lower at 0.25%, the annual cost would be only £75. Over the same five-years period, the total fees would add up just £375. This represents a saving of £1,175.
Over a 30-year investment period, these differences in fees could be very costly. Patrick Heath-Lay, Chief Executive of The People’s Partnership, stated: “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 pensions dashboards are introduced. We need to act now to ensure that people have the information they need to compare their options when considering a transfer.”