Which? is demanding urgent action to stop unfair charges to pensions, following revelations that around £25.8 billion worth of savers’ money is at risk of being exposed to high charges.
The Independent Project Board (IPB) made the findings after overseeing an inquiry into older and higher-charging pension schemes which examined £67.5 billion worth of savers’ assets.
Which? executive director Richard Lloyd said: ‘Billions of pounds of consumers’ hard-earned money are stuck in rip off pension schemes, and savers shouldn’t have to wait until the end of next year to see reform of this unfair system.
‘The regulators and industry should take urgent action to end unfair exit fees and do more to help consumers switch to better value products. All savers should be able to feel confident that the pensions industry is looking after their interests.’
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The IPB report found that between £23.2 billion and £25.8 billion of assets are potentially exposed to fees which equate to an annual management charge of above 1%.
Between £5.6 billion and £8 billion-worth of assets are potentially exposed to charges above 2% and around £900 million are potentially exposed to charges above 3%.
Schemes where savers are potentially exposed to the very highest charges are more likely to have complex fee structures, the report found.
Nearly all assets which are potentially exposed to charges of more than 3% are in schemes with monthly fees or deductions from contributions.
Of the £900 million worth of assets which is exposed to charges over 3%, most is held by savers with pension pots of less than £10,000. It said that for such savers, the impact of monthly deductions can be “very high”.
Thousands of savers in schemes with the potential for high charges had only joined them relatively recently.
Meanwhile, around £3.4 billion worth of pension assets have potential exit charges of 10% if savers left their scheme now, the report found.
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Hands off my pension
Charges at these high levels generally affect savers in older schemes. Partly in response to the Which? Hands Off My Pension campaign, the government has introduced protection for new savers who are automatically enrolled into a workplace pension. From April 2015, these charges will be capped at 0.75% for default funds.
The IPB has also recommended that the Department for Work and Pensions and the Financial Conduct Authority should jointly review progress into remedying poor value schemes and produce a report by the end of 2016.