Pension transfers are in the news after recent communications from the Financial Conduct Authority and the Department for Work and Pensions. People’s Pension CEO Patrick Heath-Lay argues that transfers must be made clearer, not just faster.
There is a lot happening in pensions right now. The Pension Schemes Act has recently been passed into law, consultation on details of reform is imminent, and the industry is being asked to think more carefully about what good outcomes actually look like for savers.
From the outside, though, most people are not following that closely. The question they tend to come back to is much simpler: Is my pension actually working for me?
After 40 years in this industry, that is the question I keep returning to as well. When the system starts to change, it is the right moment to step back and ask whether it is helping people in the way it is meant to.
“Too many transfers are driven by convenience, with the industry encouraging people to consolidate their pensions without giving them a clear understanding of what they are gaining or giving up.”
Patrick Heath-Lay, People’s Pension
Most people assume all pensions are treated broadly the same way. In practice, that is not always the case, and it becomes particularly clear when you look at defined contribution (DC) pension transfers.
Testing whether the system works
The Financial Conduct Authority’s (FCA) recent consultation on non-advised pension transfers focuses on improving the quality of decisions people make when they move their savings, rather than simply making the process quicker.
That shift really, really matters. At the moment, too many transfers are driven by convenience, with the industry encouraging people to consolidate their pensions without giving them a clear understanding of what they are gaining or giving up.
The result is an illusion of control – a sense that they are improving their position, when in reality they are often making decisions without a clear view of value. The system does not provide a clear or meaningful way for savers to compare pensions at all, and in some cases, providers are not required to show the net benefit of moving.
The FCA’s proposals move things in the right direction by placing more emphasis on standardised information and better comparisons, but the obligation ultimately sits with the industry to ensure savers are given clear, meaningful information about whether a transfer is in their best interests. That should help people make more informed decisions.
A fragmented system
For that progress to have the impact it should, it needs to be applied consistently across the market. At the moment, pensions are set up in different ways. Some are contract-based and regulated by the FCA, while others are trust-based and overseen by the Pensions Regulator (TPR). Most savers would not know which type they are in, and there is no reason they should need to.
If reforms only apply to part of the system, there is a risk of creating a divide. Some savers may receive clearer information and stronger safeguards when they transfer, while others do not, even though their pensions look and feel the same.
In practice, that could mean two people making the same decision but receiving a different level of support, simply because of how their scheme is structured.
That matters because transferring a pension has long-term financial consequences that can shape outcomes for decades. If the level of protection varies depending on factors people do not understand, the system does not work in the interests of savers and risks undermining trust. Savers should not be expected to understand the difference between regulatory regimes. To them, a pension is simply their retirement savings.
We should rethink the system so that protections, obligations, and standards are consistent across the market, regardless of how a pension is structured.
Value is bigger than cost
In workplace pensions, charges are already low and tightly controlled, but they still matter. Over time, even small differences in cost can build up and have a meaningful impact on outcomes.
However, from a saver’s point of view, what really matters is what they end up with, net of those charges. How their money grows over time, how it is managed, and whether they feel confident in what is happening. As it stands, that overall picture is not always clear or consistently presented to savers.
The wider move towards value for money reflects that shift in thinking. The focus now should be on making value clear, comparable, and consistent across all pensions, so savers can understand what they are getting and whether it is working in their interests.
“It is not enough to make pensions easier to move – we need to make them easier to understand and ensure the system works in savers’ interests.”
Patrick Heath-Lay, People’s Pension
This matters for everyone, though younger savers probably have the most to gain from getting it right. Someone in their 20s or early 30s is likely to move jobs on average 12 times throughout their career, so will build up pension pots in the background without paying much attention to them.
Many younger savers engage with their pensions in quick, digital moments rather than as long-term decisions. But those early choices matter more than people realise. A transfer made for convenience can disguise a poorer-value outcome, and over time, that can add up to years of lost savings. What matters is that people are given clear, meaningful choices and understand what those decisions mean for their future.
Making the next phase work
Pension dashboards should help people see what they have, and small pots reform should reduce fragmentation, but visibility on its own is not enough. If dashboards are to be effective, they must show clear, comparable value for money across all pensions from day one, so people can understand not just what they have, but how well it is working for them.
Just as importantly, people need clear, meaningful information before they make a decision to transfer, not after.
The industry has a responsibility to step up here. It is not enough to make pensions easier to move – we need to make them easier to understand and ensure the system works in savers’ interests.
We have made real progress in getting people into saving. The next phase is making sure that saving is delivering value, and that people can see and trust that it is.
If we can provide clearer information, better comparisons, and a more consistent, saver-focused approach across the market, we can give people confidence that the system is working in their interests – and delivering the outcomes they expect from it.
Patrick Heath-Lay is CEO at People’s Pension.
