People with small pension pots are likely to run down their savings long before they die, old age charity Age UK warns.
It says someone drawing down a £29,000 pot would run out of money by the age of 75, far short of 83 or 86 the current life expectancy of a 65-year-old man and woman.
The charity’s report, written by former Which? financial services policy team leader Dominic Lindley, assumes the pensioner takes £3,000 a year in income and a 3 per cent return on the remaining savings.
The report also calls for the introduction of a charge cap on drawdown funds, an idea currently being explored by a Labour Party-commissioned consultation on decumulation products.
Age UK says people who put their pensions into drawdown arrangements are likely to receive £11,000 less in a typical high charging drawdown product than one with a 0.75 per cent charge. The figures are based on a £29,000 pot with an initial 2 per cent set up charge, a 2 per cent annual management charge and a £150 annual administration charge.
The charity supports the ‘second line of defence’ concept of extra protection for consumers at the point of retirement, due to be debated in the House of Lords next week. It also wants a review of default funds in the light of the Budget changes and an annuity clearing house to tackle the poor annuity rates offered to internal customers by some insurers.
Age UK charity director Caroline Abrahams says: “We welcome people having more flexibility in how to use their pension savings. But that makes it even more important that we fully understand the implications and consequences of our financial decisions and can trust the financial services in which we have invested.
“That’s why we believe that there must be additional checks and balances introduced to the pensions legislation in addition to the impartial guidance that will be available.
“This is too important to leave to chance.”