People could end up losing out on thousands by being persuaded into the wrong retirement product. Consumer group Which? reckons the new pension freedoms coming into effect in April could lead to more people using so-called income drawdown, which allows money out gradually each year. But its research uncovered high charges among these products, including one that charges 2.7 per cent.
It wants a charge cap of between 0.5 and 1 per cent introduced to protect people. According to the group’s calculations, someone with a typical pension pot of £36,000, drawing down £2,000 a year, would end up around £10,300 better off with a 0.5 per cent charge than with 2.75 per cent.
Which? executive director, Richard Lloyd, said: “It’s right that the Government is giving people the freedom to decide how and when they access their hard-earned pension savings, but deciding how to use these savings in retirement is one of the most complex financial decisions many will have to make and one they cannot afford to get wrong.
“That’s why we want the Government to take action to secure better pensions so people have just as much protection when they take money out of their pension as when they put money in.”
TUC General Secretary Frances O’Grady supported the campaign. “Millions of people could lose thousands of pounds due to excessive charges in retirement at the very time they should be enjoying the fruits of their savings. Consumers do not want the freedom to be ripped off. And there is no better way of deterring a generation from saving for their old age than another pensions scandal.
“The problem with the Chancellor’s approach is that while there was much wrong with the annuity system, he has done nothing to replace it with a system that will work for consumers.”
But pensions expert Tom McPhail of Hargreaves Lansdown criticised Which?’s figures. “Many pension providers will not offer drawdown facilities and those that do are all in the process of reviewing their charges and terms,” he said. “This means the analysis, based on old products is already on the way to being out of date.”