Thinking of Moving a Pension? Why Checking Pension Fees Is Crucial Before You Transfer

It’s not uncommon for individuals to amass a collection of pension pots throughout their careers. However, a significant oversight could be lurking for those considering consolidating or transferring their pensions: failing to scrutinise the fees involved. A recent study highlights a worrying trend where the majority of savers overlook the impact of fees when moving their pension, potentially eroding a substantial portion of their retirement savings.

The Hidden Costs of Ignorance

The research conducted by People’s Partnership, a pension provider, sheds light on a concerning issue. It found that nearly three-quarters of individuals who transferred a pension pot in the last two years did so without checking the fees of either their old or new pension schemes. This lack of diligence could have a staggering financial impact. For instance, a seemingly minor increase in fees from 0.4% to 0.75% could diminish a potential £870,000 pension pot by more than £70,000.

The Real Impact of Fees

Many savers, during their working lives, accumulate multiple pension pots, and the decision to consolidate these into a single scheme can seem appealing for simplicity’s sake. However, the research emphasises the importance of being aware of the fees charged by pension schemes. Astonishingly, 11% of those surveyed were not even aware that their pension was subject to any charges, and 72% did not know the fee structures of their current or previous pensions. This oversight can significantly reduce the size of the retirement pot, with the study providing stark examples of the potential losses.

An Example to Consider

Take the case of a 30-year-old earning £30,000 and deciding to move a £10,000 pension pot from a scheme charging 0.4% to one charging 0.75%. By the time they retire at 67, they could see their potential £453,700 pension pot reduced by £32,900 due to the higher fees. The impact is even more pronounced for larger transfers or higher salaries, highlighting the critical nature of understanding and comparing pension fees.

Seeking Transparency and Making Informed Decisions

The study also revealed that half of the participants found it challenging to track down the fees they were being charged. This lack of transparency within the pension industry can lead to uninformed decisions, underscoring the need for savers to take proactive steps in understanding their pension charges. The People’s Partnership advocates for increased clarity from pension providers to help individuals make better financial choices regarding their retirement savings.

Tips for Pension Savers

For those considering a pension transfer, the People’s Partnership offers valuable advice:

  • Evaluate Your Goals: Consider what you want from your retirement savings and choose a provider that aligns with your long-term objectives.
  • Understand the Fees: Fees can vary significantly between providers, and even small differences can have a large impact over time.
  • Consider the Full Picture: Look at the provider’s investment performance, customer service, and the fees charged to ensure you’re getting good value.
  • Do Your Homework: Don’t make decisions based on the first offer you see. Gather comprehensive information and compare your options.

Before consolidating pensions, it’s crucial to consider several factors beyond fees, such as investment choices, any guaranteed benefits you might be giving up, and whether your current workplace scheme offers better terms. The decision to merge pensions should not be taken lightly, as it can have lasting implications on your financial security in retirement.

The Bottom Line

While consolidating pension pots can offer convenience and potentially better investment options, the decision should not be made without thorough research and understanding of the fees involved. By taking an informed approach, you can avoid eroding your hard-earned retirement savings and ensure a more secure financial future.