Pension warning: Britons may have to work three years longer as £1.2bn savings is lost due to hidden charges

Pensions provider, The People's Pension has found that UK savers could have lost £1.2billion in just one year transferring from lower-charging workplace pensions into higher-cost options.

The provider carried out analysis based on the volume of transfers out from the People’s Pension in 2023 and the average size of pots being transferred.

The number of people transferring their workplace or private pensions without receiving professional advice has increased by more than 50 per cent over the past four years.

And over that time, the amount lost due to moving pensions to schemes with higher charges has jumped from £792million to £1.2billion in 2023.

These ill-informed transfers are costing savers hugely over the course of people’s pension savings journey to retirement.

Britons are charged a fee every year to cover the costs of their work place scheme which include managing investments and running the platform.

Many people switch pensions to move to a scheme charging lower fees, however the research has found thousands of customers have moved to pensions with higher charges and didn't know.

It calculated that savers who transfer multiple low-charging workplace pensions into one higher-cost option could lose up to 20 per cent of their pension by retirement, meaning they could be forced to work for atleast three more years just to make up the cash they've lost.

The majority of firms charge between 0.25 per cent and one per cent in annual management charges.

These fees may sound tiny, but even a tiny percentage difference can make a huge impact on your pot size over time.

The People’s Partnership warned this could become a “multibillion-pound issue” once pensions dashboards, which are in the pipeline, eventually go live.

The dashboards will enable people to see all their pension pots in one place online, potentially making it easier to move savings around.

Patrick Heath-Lay, CEO of the People’s Partnership, said: “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 commercial pension dashboards are introduced.

“With adequacy of saving levels still a significant factor to future pension policy success, this turbo-charging of the transfer market will ultimately be to the consumer’s detriment, meaning we need to act now to ensure that people have the information they need to compare their options when considering a transfer.”

A Department for Work and Pensions spokesperson said: “We are committed to ensuring people have the right support and information they need to make informed choices about their financial futures. This strikes the right balance of providing vital protections as well as freedom of choice in how to use their pension savings.

“Our Value For Money Framework will mean that savings are invested well, they are not being eroded by high charges and that schemes are helping members make the right decisions whilst contributing.”