More than 300,000 pension savers at risk of high charges, regulator finds

More than 300,000 pension savers are at risk of high charges eating into their pot, despite significant progress being made across the industry in reducing fees, the City regulator has found.

The Financial Conduct Authority (FCA) and the Department for Work and Pensions (DWP) released a joint review of the industry's progress in remedying poor value legacy workplace pension schemes.

A previous study in 2013 found that £30 billion of savers' funds in defined contributions (DC) workplace pensions were at risk of delivering poor value for money.

The new review found that a "substantial majority" of customers in both contract and trust-based workplace pension schemes are receiving, or will receive, an improved outcome with costs and charges being reduced to 1% or below.

But it said there are a "small number" of providers whose progress is unsatisfactory or unclear, with customers still at risk of high costs and charges. The FCA and the DWP will be asking these providers to explain the reasons for this, and to ensure that savers are being treated fairly.

Progress is unsatisfactory or unclear for contract schemes affecting around 243,000 customers, and trust-based schemes affecting 85,000 customers, the review said.

However, more than a million customers within contract-based and trust-based schemes are now subject to lower charges than before.

Andrew Bailey, chief executive at the FCA said: "Pension providers look after the savings of millions of customers and it is vital that they provide good value for money."

He continued: "There is still more to do so we will be contacting the providers who have not yet taken satisfactory actions to remedy poor value schemes and we expect them to act swiftly to ensure good value for customers."

Pensions Minister Richard Harrington said: "I am pleased that more than a million pension savers will benefit from our push to curb excessive charges in legacy schemes.

"Nevertheless, some people are still at risk of high charges, so I shall be seeking assurances from the providers of those schemes, that they will be taking steps to resolve this issue."

Analysis from AJ Bell found that a saver with a £100,000 pot could have a pension worth £10,000 less after 20 years in a scheme charging 1% versus a scheme charging 0.75%, assuming average annual growth before charges are deducted of 5%.

Tom Selby, senior analyst at AJ Bell, said: "The DWP and FCA are right to focus on this part of the market and should seek reassurances from providers that they will address the issues raised as a matter of urgency."