View more on these topics

Industry warns Labour over drawdown charge cap ‘unintended consequences’

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.”

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. Another financially poorly educated, non qualified, interfering busybody. MP’s Pah!

    I know, lets take away the cap on draw down. Ooh er Matron! Lets put it back in a different format because I haven’t got anything else to talk about and the general public are idiots!

    Why don’t they consult on political abuse of position or child abuse or NHS abuse??

  2. The apparent example from Which? which (I think) Ed Milliband was referring to discussed a £38,000 pot and then highlighted that some drawdown plans could charge as much as 2.76% – going on to mention that this was a full SIPP.

    What a pointless example – it’s like basing the cost of average motoring to the average person on a Mclaren F1.

    What Ed Milliband should look at is ensuring consumers are given the tools to made informed decisions (top down ‘big picture’ stuff!) not legislation on charges and ignore everything else (bottom up tinkering).

    It’s ok having a cheap drawdown contract – unless that it, drawdown isn’t appropriate irrespective of charges.

    The seriously big dangers are liberation destroying someones hard earned funds and/or unintended tax consequences – not paying 0.2% more than you might somewhere else!

    The issue is that those of us who take issue with Milliband could be seen as being ‘in it for ourselves’ – whereas the reality is that I just want the politicians to focus on the real issues, not just electoral sound bites which makes everone think they are hard done by.

  3. The MP’s pension needs to be changed to a money purchase so it reflects the majority of the working population and improve their knowledge of what really benefits a funded money purchase investment. These people will hack people’s funds and income till the cows come home unless they are on the same deal.

Leave a comment