Pension transfer delays are costing consumers a total of over £1 billion, according to new research by online pension consolidation service PensionBee – a cost that could be avoided by transferring pensions electronically.
There are 33.4 million defined contribution pension pots in the UK, and the research assumes that they will each be transferred at some point at least once, whether to consolidate pensions, purchase an annuity or be put into a new account for drawdown purposes.
The transfer process is similar in all three of these scenarios, including requests for documentation and form requirements. Further, PensionBee calculates that 30 per cent of the 33.4 million transfers are manual, which means that approximately 10 million people making transfers will incur these costs.
The £1 billion figure consists of two parts. Procuring the right documentation, finding witnesses, travelling to the post office and other time and monetary expenses mean that each person pays £74.85 on average to do a manual transfer. Overall this amounts to £749 million.
The second part of the figure consists of the money associated with having to wait an average of 66 calendar days from the initial decision to transfer until the funds appear in the new account.
The research estimates the average UK pension pot size as £19,268. For that value, the cost of the 66-day delay in transfering from an old policy with a 0.8 per cent fee to one with a 0.5 per cent fee works out at £8.55 per person. This amounts to £285 million. Taken together, these two costs associated with pension transfers add up to over £1 billion.
While the Financial Conduct Authority introduced a 1 per cent cap on early exit charges for pensions this year, the cap doesn’t apply for someone who wants to move their pension to their provider of choice before the age of 55.
This means that people who simply want to move their pension pots from previous jobs to another workplace pension risk paying significant exit fees. Pension transfers are not unusual, given that the Department for Work and Pensions estimates that people currently work for an average of 11 employers during their working life.
PensionBee reported some sky-high exit fees from some providers. Individual examples of the most extreme exit fees come from from Friends Life (77.6 per cent), Phoenix Life (73.7 per cent), Abbey Life (48.7 per cent) and ReAssure (15.1 per cent).
Clare Reilly, head of corporate development at PensionBee, says: ‘Some providers still insist on making it really difficult to save for retirement. We see that opaque fees, archaic paper systems and shocking charges continue to plague savers in 2017.’