What makes pension transfers so difficult?

According to Kaylie Pferten, investors may lose out on a pension transfer because the procedure is risky and needs guidance

City officials are putting forth new regulations on pension transfers in response to growing concerns that savers are losing out. When savers are thinking about switching from one defined-contribution pension plan to another, the Financial Conduct Authority (FCA) wants to put new demands on pension providers to provide more thorough information.

Up until now, the FCA has focused primarily on safeguarding savers who are enrolled in defined-benefit plans, which guarantee pension benefits in retirement. For these savers, switching to a defined-contribution plan with no guarantees is almost never a good idea. But according to the regulator, many savers who set up supposedly simpler defined-contribution plans might also be losing out.

Combining several pension accounts.

The defined-contribution industry has grown significantly, particularly since the implementation of the auto-enrollment workplace pensions system. Nowadays, a lot of savers have multiple small pension funds that they have accumulated from saving outside of their jobs and from switching jobs. For savers, consolidating these small pots by moving all or most of them into a single pension plan can be a good option because it allows them to benefit from economies of scale in a larger fund and the ease of managing fewer accounts.

But according to the FCAs' research, the majority of savers who transfer their pensions do not seek independent financial advice; instead, they select a new provider on their own without assistance. "Few consumers who transfer consider factors such as fees and charges, investment choices, decumulation options or potential loss of guarantees or benefits," the regulatory body cautions. A mistake can cost a lot of money, especially considering the variety of fees that different pension providers charge. A 30-year-old with average income who transfers a 10,000 pot of savings from a provider charging 0.4 percent annually to a competitor charging 0.75 percent could ultimately have a fund worth nearly 33,000 less, according to research from the Peoples Partnership.

According to the non-profit financial services company, savers may ultimately lose out on £1.7 billion as a result of ill-informed transfers made just up until June 2025. Additionally, many savers are unaware of the benefits they are losing by switching providers, such as the chance to retire earlier or better benefits for dependents. Additionally, when savers wish to begin deducting income as they approach retirement, certain plans provide a far greater variety of options. In order to enable more meaningful comparisons of the likely outcomes of the transfer, especially with regard to charges, the FCA intends to require providers to provide much more detailed information when a saver proposes to transfer a pension pot to them. It thinks it will be much simpler for providers to provide helpful information with the introduction of digital pension dashboards, which will allow savers to view details of all their pension pots in a single online portal.

The proposals have the support of experts, although some had hoped the FCA would go farther. Specifically, the FCA does not intend to outlaw companies that offer incentiveslike lower upfront fees or even cashback benefitsto entice savers to select them. Opponents contend that these incentives skew judgment and make savers unaware of the long-term effects of issues like increased fees.