Labour has come under fire from the pensions industry after announcing plans to investigate how to limit fees on drawdown products.
Opposition leader Ed Miliband will announce a consultation on capping drawdown fees later today, having highlighted concerns that savers could be “ripped off” by the industry.
Details of the level of the cap or how it will be applied remain unclear, however.
Fidelity retirement director Alan Higham says while fees are often poorly publicised, Labour must proceed with caution.
He says: “A simple cap though could have the unintended consequence of denying pension freedom for millions of people and so the issues need careful consideration.”
The Association of British Insurers’ director of long term savings policy Yvonne Braun adds: “The industry is committed to value for money, which is why average workplace pension charges have fallen steadily to their lowest levels ever.
“A charge cap for income drawdown products is inappropriate as the market is still developing and solutions vary depending on customer choices. With the advent of the pension reforms, the market is fundamentally changing and insurers will continue to assess their charges to ensure customers get value for money products in the new environment.”
Intelligent Pensions marketing director Andrew Pennie says politicans should focus on boosting engagement rather than pursuing a “kneejerk reaction” on drawdown fees.
He says: “What is key is whether charges represent value for money for the client, and not get hung up on cost. We need to consider what service and options the customer is getting, and what value they place on it.”
“Instead of a kneejerk reaction, we believe a better solution is to help people decide the right retirement strategy for them, not just at retirement, but in the run-up to retirement. And then make sure people shop around for the best solution for them.”
Talbot and Muir head of technical support Claire Trott says calls for a cap reflects question marks over whether savers with small pots should be opting for drawdown. New pension freedoms coming into force next month will effectively open up flexible drawdown to the masses.
Trott says: “Smaller pots would benefit from a percentage charge cap, but as the process for drawdown is the same irrelevant on pot size, it may lead to providers not being willing to offer these options to the lower end of the market because they will be out of pocket.”