The Government is facing growing pressure to cap pension drawdown charges after research revealed savers could be losing out on thousands of pounds depending on the provider they choose.
Consumer watchdog Which? says an individual with a £50,000 pension pot who takes 4 per cent a year as income could be over £3,000 better off over 10 years if they used Fidelity, the cheapest provider at £4,993, rather than The Share Centre, the most expensive at £8,100.
An individual with a larger pot of £250,000 who takes out 6 per cent a year over 10 years could be charged between £16,325 (LV=) and £26,490 (Scottish Widows).
Which? also warns of the complexity facing customers following the introduction of pension freedom in April, with some likely to be presented with as many as five different types of charges.
Furthermore, there is a vast difference in the amount people are charged for using the uncrystallised funds pension lump sums option to make ad-hoc withdrawals. Some brokers, such as Fidelity and Hargreaves Lansdown, don’t levy any extra fee, but Charles Stanley Direct charges £270 for the first withdrawal each year and James Hay hits savers with a £100 fee.
Barclays Stockbrokers, Halifax Sharedealing and TD Direct charge £90.
Which? executive director Richard Lloyd says where a drawdown product is sold to an existing customer, rather than on the open market, charges should be limited by the Government.
He says: “The old annuity market failed pensioners miserably and the Government must ensure the same thing doesn’t happen again with drawdown. With such big differences in cost, and confusing charges that make it difficult to compare, it’s clear more needs to be done to help consumers make the most of the freedoms.
“We’re campaigning for a cap on charges for drawdown products sold by someone’s existing provider to ensure people get good value for money.”
The drawdown charge figures are based on a study of 18 companies offering customers full pension freedoms access. Eight of these were insurers, while 12 were investment brokers.
Which? used the Henderson Cautious managed fund to model its scenarios and assumed investment growth of 5 per cent per year.