Pension savers are losing £1.2bn each year by unwittingly transferring their pensions to higher charging providers, a new study warns.

The new Pension Transfer Outcomes Index, launched this week, warns of a estimated £1.2bn loss from poor pension transfer decisions.

The index has been launched by workplace pensions provider People’s Partnership which has analysed pension transfer data and survey results from 1,000 unadvised consumers.

The research found that nearly three quarters (72%) of people who had transferred a defined contribution pension in the past two years did not know exactly what the fees were for their new pension and one in 10 (11%) did not think their new pension had any fees or charges.

Analysis of data and a survey of 1,000 unadvised consumers predicted that more than a billion pounds of retirement savings would be lost due to savers transferring to higher charging pensions.

According to the research, market activity for unadvised DC transfers has increased by more than 50% in four years and correspondingly the predicted loss is up from £792m in 2020 to £1.2bn in 2023.

The index is based on people switching from a lower charging workplace pension, where their pension is subject to a charge cap, to higher charging, uncapped retail schemes.

The firm believes that the Pensions Dashboards could make matters worse by potentially making it easier to transfer without understanding the charges involved.

The issue is exacerbated by the challenges people face to differentiate between low and high-charging pension options. 

Analysis by People’s Partnership found that individuals who transfer successive lower charging workplace pensions into a higher cost retail option, could be missing out on as much as 20% of their pension pot by the time they retire.

The company has urged providers to be compelled to disclose key information to consumers, ensuring they are aware when they are moving to higher charging products.

People’s Partnership recently launched its Pension Overview webpage which highlights key considerations needed before transferring a pension, including how much people are charged and recent investment performance. The organisation is calling for other providers to be more transparent by giving savers similar clear information.

Patrick Heath-Lay, CEO of People’s Partnership, said: “It’s incredibly worrying that our modelling shows more than a billion pounds is potentially lost due to people transferring to higher charging pension schemes. Given market activity around transfers is escalating, this could easily cost consumers billions a year more once commercial Pension Dashboards are introduced. 

“With adequacy of saving levels still a significant factor to future pension policy success this turbo charging of the transfer market will ultimately be to the consumer’s detriment, meaning we need to act now to ensure that people have the information they need to compare their options when considering a transfer.      

“The FCA has a new value for money framework for workplace pension schemes high on its agenda. We believe this framework should apply to the whole market, rather than just workplace pensions.”

People’s Partnership provides The People’s Pension, an independent master trust. It serves more than 6m pension savers across the UK and manages £28bn in assets.

• Research was conducted in November and December 2023 by People’s Partnership. It surveyed 1,000 people who had consolidated their defined contribution (DC) pensions, without the help of a financial adviser, in the last two years.