Many people are not getting value for money from the significant charges they are paying financial advisers after they have moved out of a defined benefit (DB) pension arrangement, XPS Pensions Group says.
The firm's latest member outcomes survey - published today (8 December) - analyses transferring DB pension scheme members and various patterns in how and why the transfers occur.
The average total charge paid by a scheme member after transferring has fallen from around 1.9% per annum to 1.7% per annum, XPS found. On average, this means a savers' fund will last around 12 months longer than previously expected.
Central within the average annual management charges a saver will pay is ongoing financial advice charges, which XPS has raised a specific issue.
Although average fees paid by members have fallen slightly since XPS first started this survey in 2018, it said it "remained concerned" about advice.
"Many members are not getting value for money from the significant charges they are paying, effectively not using or valuing the services that they are paying for," it stated. "If these members were provided with access to an unbiased financial adviser and selected a low-cost receiving vehicle, we estimate their funds could last a further eight years, or result in an annual pension 15% higher."
The survey showed advice fees were around 0.6% annually in 2022 for the average transfer client, while the average investment charge was 0.8% (no change from 2018) and the charge from the pension provider was 0.3% which represents a slight drop on 0.4% five years ago.
Transfer trends highlighted
XPS noted transfers away from old final salary arrangements into defined contribution (DC) offerings are "largely a retirement decision" and that the average of transferees is continuing to rise, having reached 57.7 this year.
The firm also noted that more than three quarters of DB to DC transfers in the last five years have been taken by members over the minimum retirement age.
A surge in smaller transfer values has also been observed, with the proportion of savers who have a value of £100,000 or under increasing to represent around one third of all transfers.
"In particular, there has been a significant increase in the number of members taking transfer values worth less than £30,000," the survey stated. "These are some of the most vulnerable pension scheme members as they are not required to take financial advice in order to transfer their benefits away from a DB pension scheme."
XPS added that savers in that situation are "unlikely to consult a financial adviser by choice" and are likely to view the minimum fee to do so as prohibitive.
The firm estimates one million members of private sector DB schemes will look to draw their benefits over the next five years.
A key recommendation for pension providers from XPS is to provide better access to unbiased advice "to help them make the appropriate decision for their individual circumstances".
"Ensuring members' finances are in good health at retirement starts with good advice and support," said head of member options Mark Barlow. "In the midst of the cost of living crisis, schemes should be doing what they can to help members make good decisions about their finances. With around one million members expected to retire or transfer over the next five years, now really is the time to act."
