People’s Pension has welcomed the FCA proposals to strengthen the non-advised pension transfer process as a big step forward for savers.
According to the workplace pension provider, placing greater emphasis on clear, objective comparisons between ceding and receiving schemes is essential. Pension transfer decisions carry long-term consequences, and its recent modelling shows the scale of potential harm. A 30-year-old average earner moving a £10,000 pot from a provider charging 0.4% to one charging 0.75% could be £32,834 worse off at retirement2.
While this example highlights the impact on an individual saver, the scale of the issue across the whole market is even more stark. People’s Pension’s latest Transfer Outcomes Index shows a wider pattern of detriment, with savers at risk of losing £1.7bn in a single year from poorly informed transfers across the market3.
Despite this, people transferring pensions do not usually consider pension product quality. Only 16%4 of people transferring a pension cite investment performance and 9% cite charges as the main reasons for transferring a pension. Ease of transfer and consolidation, not product quality are the main reasons people choose to transfer: 29%, choose the pension they are currently paying into and 18% transfer into their largest DC pension pot.
Helping people consider where to send their retirement savings by making standardised, comparable information available during the transfer process could help savers take better decisions.
However, the provider expressed its disappointment that the FCA is not recommending banning incentives in pensions. Behavioural research from People’s Pension and the Behavioural Insights Team shows these incentives make people 20% more likely to transfer and 20% less likely to read essential information, even when the choice leaves them worse off. The FCA has signalled that incentives may breach Consumer Duty where savers subsequently transfer to a worse pension, but People’s Pension argues the risk they pose to all savers remains significant.
Patrick Heath-Lay, CEO of People’s Partnership, provider of People’s Pension, said: “This is a big step forward as the FCA has got to the heart of the matter: it’s the quality of the decision that matters most when transferring a pension. People need help to accurately compare different pension products: it’s confusing, complex and clear communication from pension providers will help.
“Transferring a pension is not like switching a bank account – there are long term consequences from poorly informed decisions.
“The next step should be to consider how these proposals fit with the value for money agenda. From 2028 workplace schemes will be rated on the value they offer but should be extended to all pension providers.
“The FCA should also be thinking ahead to how pension products will be seen and compared on pension dashboards when they launch later this decade. They’re right that dashboards will transform the way people engage with pension saving – but the logical next step should be clear value for money ratings on dashboards. While there is much to welcome in these proposals, stopping short of banning incentives is a missed opportunity. Our research shows how quickly incentives can distort decision-making and lead to long-term losses. We look forward to working with the FCA and government to ensure reforms genuinely protect pension savers.”
