Pension transfers could cost members £2,600 over expected lifetime

pension transfers loss

Pension members choosing to transfer out of their employer’s scheme could receive an income that is £2,600 lower over their expected lifetime, according to research by XPS Pensions Group.

The report, Member Outcomes Under Freedom and Choice, published today (7 August 2018), looks at data on defined benefits (DB) scheme transfers, collated by XPS Administration over the period since 2016.

The research also found:

  • Depending on the choice of retirement vehicle chosen to receive a transfer, an individual could run out of money seven years earlier if they draw an income of £10,000 per year, and could risk leaving an inheritance of £340,000 lower at the end of their expected lifetime.
  • In an analysis of more than 6,000 transfers from DB schemes, 9% went to a full self-invested personal pension (SIPP), and 86% to a platform SIPP.
  • The average transfer size is £230,000, which could equate to an annual pension of between £7,000 and £10,000.
  • An additional 1% of fees each year, charged as a member moves from an occupational pension scheme into an SIPP, could cost from £100,000 to £150,000 on a £250,000 transfer over a 20-year investment.

Wayne Segers, principal, XPS Pensions Group, said: “Members deserve better guidance from the pensions industry. Advisers, employers, and trustees can do more to help them at this vulnerable time. It is hard to escape the fact that the last place where collective, cost effective support can be provided to people is while they are still members of their employer occupational pension scheme.

“Charging structures can be complex and confusing and employees may end up paying for flexibility in investments that they don’t need and will never use. With a continued surge in transfers from [DB] schemes expected, it will be important for UK companies to help their employees and ensure they are supported in making good decisions with their pension savings.

“Given the amounts of pension savings being transferred and the range of outcomes people face, more needs to be done to ensure people don’t lose out in retirement. Recent high-profile cases have highlighted the need for employers to take ownership to ensure members don’t make poor choices that may lead to reduced income in retirement and the risk of employers themselves being criticised in retrospect. Better support and education is needed so that those choosing to move their pension away from their employer’s scheme make an informed decision.”