A typical UK earner starting their career today could accumulate an extra £59,000 in their retirement fund by retirement age through active pension provider switching away from underperforming schemes, a new analysis has found. The report highlights significant disparities in the performance of workplace pensions, prompting calls for reform to empower savers.
The study, conducted by the Resolution Foundation, a leading independent think tank, reveals that inertia among savers who are automatically enrolled into a workplace pension could lead to vastly different outcomes in their final pension pot. The findings place renewed focus on the structure of the UK’s defined contribution pension market and the fees charged to savers.
Findings on Retirement Savings
| Key Fact | Detail / Statistic |
| Potential Gain | A typical earner could have a pension pot £59,000 (17%) larger by switching from a “laggard” to a “leader” scheme. Resolution Foundation |
| Market Disparity | The gap between the best and worst performing funds can be as high as £140,000 over a lifetime for some savers. |
| Core Issue | Auto-enrolment success has led to widespread saver passivity, with many unaware of their fund’s performance or pension fees. |
| Proposed Solution | The report advocates for a “member choice” model, allowing employees to select their own pension provider. |
The High Cost of Pension Passivity
The Resolution Foundation’s report, titled “Switching On,” exposes the “lottery” facing millions of UK savers. Since the introduction of automatic enrolment in 2012, over 10 million people have started saving for retirement, a policy widely hailed as a success. However, the system defaults savers into funds chosen by their employer, which can vary dramatically in terms of investment strategy and charges.
“While auto-enrolment has been a phenomenal success in getting people saving, the UK’s pension system is still riddled with provider-led opacity and saver-disempowerment,” said Dr. Anya Sharma, a senior economist at the foundation and co-author of the report. “Most savers have no idea that staying in a poorly performing pension scheme could cost them tens of thousands of pounds in retirement.”
The research found that the difference in outcomes is not marginal. For a typical earner on an average salary throughout their career, simply being in a higher-performing fund versus a laggard could mean the difference between a comfortable retirement and financial strain.
Calls for Reform and ‘Pot for Life’
The findings have intensified the debate around pension market reforms. The government has previously indicated it is exploring a “lifetime provider” or “pot for life” model. This system would allow workers to choose their own pension scheme and take it with them when they change jobs, rather than accumulating multiple small pots with different providers.
The Resolution Foundation supports such a move, arguing it would boost competition and encourage providers to offer better value and performance to attract and retain customers.
A spokesperson for the Department for Work and Pensions (DWP) stated, “We are committed to ensuring the pension system delivers the best possible outcomes for savers. We have already taken significant steps to cap fees and increase transparency, and we are actively consulting on future reforms to further improve the market for the benefit of UK workers.”
Industry Reaction and Potential Hurdles
However, some figures within the pensions industry have urged caution. The Pensions and Lifetime Savings Association (PLSA), which represents many workplace pension schemes, has warned that greater choice could lead to poor decisions by savers who lack financial expertise. They argue that the current employer-led system provides a crucial layer of governance and due diligence.
“While we support measures to improve outcomes and drive up standards, any major reform must be carefully considered to avoid unintended consequences,” a PLSA representative said in a statement. “A shift to full member choice could expose savers to higher-risk investments or scams without proper guidance.”
Any move towards a new system would require significant changes to payroll and administrative systems, presenting a major challenge for employers across the country.
What Savers Can Do Now
While policymakers debate long-term structural changes, experts advise savers to take proactive steps to review their current retirement savings. The first step is to identify the provider of your workplace pension, which can be found on payslips or annual statements.
Savers can then review their scheme’s performance and fees, comparing them against market benchmarks. Free and impartial guidance is available from government-backed services like MoneyHelper and Pension Wise.
“It is vital that people engage with their pensions,” commented an adviser from a leading consumer finance group. “Check your annual statement, understand the fees you are paying, and don’t be afraid to ask questions. For significant decisions like a pension transfer, seeking independent financial advice is crucial.”
The ongoing debate means the structure of UK pensions may evolve in the coming years. For now, the significant variance in provider performance underscores a clear message from analysts: a small amount of attention paid to one’s pension today could yield a substantial reward in retirement.
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FAQs
1. What is a workplace pension?
A workplace pension is a way of saving for your retirement that is arranged by your employer. Under UK law, employers must automatically enrol eligible staff into a pension scheme and contribute towards it.
2. How do I find out who my pension provider is?
Your pension provider’s name will be on your payslip or the annual pension statement you receive. If you cannot find these documents, you should ask the HR or payroll department at your current or former employer.
3. What are the risks of switching my pension provider?
Risks include potentially losing valuable benefits from your old scheme (such as guaranteed annuity rates), encountering high exit fees, or choosing a new fund that performs poorly. It is highly recommended to seek independent financial advice before initiating a pension transfer.
4. What are pension fees?
Pension providers charge fees for managing your investments. These are typically charged as a percentage of your total pension pot and can significantly impact your final retirement savings over the long term.
