To Switch or Not to Switch, That's the Question. An Analysis of the Potential Gains from Switching Pension Provider

Abstract

The question of whether or not to switch from an existing personal pension to another personal or stakeholder pension is a timely one following the introduction of stakeholder pensions. The maximum 1% charge makes stakeholder pensions cheaper than many personal pensions sold in the past - making it potentially attractive for some people to switch. For example, it is estimated that there are about two million people in the government's original target group for stakeholder pensions who already have a personal pension and who might therefore consider whether to switch to a stakeholder pension. Whether someone would benefit from switching or not is not a simple issue. There are potential gains from switching if the charges on the new pension are lower than those on their existing pension. But there are also potential costs because of up-front charges and/or exit charges on the existing pension. Consumers need to weigh carefully the costs and benefits before making their decision and may need to consider taking financial advice. This paper discusses the range of different issues that consumers need to consider in deciding whether or not to switch pension provider.