Older DC pension pots delivering ‘poor value for money’ – IFS

UK pension savers currently stand to lose thousands of pounds if they do not move older pensions to pots that offer better value for money, research from the Institute for Fiscal Studies (IFS) has indicated.

The findings suggested that many deferred pensions held by a sample of people in their fifties are in schemes with charges that are high, relative to current market standards.

The IFS research, funded by the Economic and Social Research Council, examined data from Profile Pensions on the deferred defined contribution (DC) pensions held by a large sample of its potential customers.

Among people in their fifties contacting Profile Pensions, the average annual fee for deferred pensions taken out in the 1990s is above 1.1% of fund value, which compared to around 0.9% for pensions taken out in the 2000s, and 0.8% for pensions taken out in the 2010s. The IFS suggested that while the difference between 1.1% and 0.8% could appear small, it could make an important difference to retirement resources when cumulated over many years.

For a 50-year-old with a pot of £21,000, for example, it would amount to a difference of around £2,400 at the age of 67 in today’s prices, if annual investment returns going forwards are the same as the average over the past five years.

“It is vital that people get the most out of the retirement saving they have done over their working lives,” commented research economist at IFS, Kate Ogden.

“This won’t happen automatically. Older personal pensions risk becoming poor value for money. The fees charged are often higher than those on pensions taken out more recently.

“In addition, how they are invested can become less appropriate as individual circumstances change. Many would benefit from taking active decisions over their past pensions, and this needs to be made easier to do. But greater individual engagement will never completely fix this issue, and policymakers need to consider wider initiatives to encourage value for money in older pensions.”

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