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Lords hit out at ‘ridiculously high’ drawdown charges


The Government’s failure to intervene on “ridiculously high” charges in drawdown is causing savers to be cheated on a daily basis, according to members of the House of Lords.

In a debate on charges relating to drawdown products, members of the house rounded on Government spokesman Lord Freud, who insisted policymakers will continue to observe the impact of the recently implemented pension freedoms, rather than instituting a cap.

Freud was answering questions for the Government in the place of Baroness Altmann, who is unable to respond in the House as she has yet to make her maiden speech.

Pressed by Labour shadow pensions minister Lord Bradley on whether the Government would implement a charge cap, Freud said: “We are going to see how the market develops.

“It has been going for only two months, and if it looks appropriate, as I just said, we will introduce a cap on charges.”

However, the response drew censure from other members of the Lords, including Labour peer Baroness Drake, who sits on the board of The Pensions Advisory Service.

She said: “Some providers of income drawdown will charge between £150 and £200 each time a customer takes out cash, so a person with a £30,000 pot who takes out £5,000 in cash over six years will lose between £900 and £1,200.

“Will the minister challenge the industry on why the charge to access cash now is so ridiculously high?”

Labour peer Lord Hughes attacked the Government for failing to consider drawdown charges before introducing the pension freedoms.

He said: “What the minister is really saying is that no planning was done whatever and no thought whatever was given to how this matter would develop. Is he aware that, the way things are going, this will make the PPI scandal look like a children’s tea party?”

Fellow Labour peer Lord McFall added the Government’s failure to act is harming the prospects of investors, claiming savers are being ripped-off “daily.”



Labour to consult on drawdown charge cap plans

Labour leader Ed Miliband will today set out plans to consult on capping fees and charges on pension drawdown products. The announcement of the proposal comes after Labour first floated a cap in November last year as part of a party-backed independent review of the retirement income market. In a speech in Redcar later today, Miliband will […]


SNP targets ‘unfair’ pension charges

The Scottish National Party has warned that while it backs pension freedoms, it plans to identify and target “hidden” and “unfair” charges. In its election manifesto, published earlier today, the SNP says it backs the principle of giving pensioners more freedom over how to spend their retirement pot. However, the party warns: “We must ensure adequate […]

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Paul Lewis: How can we clean up charging structures?

I bought a washing machine the other day. An LG. £799. I know, I know, it was expensive but it gave me a lot of choice and had very good performance reviews. I rang a local plumber to fit it, who asked me the make and model and quoted me £279.65. “That seems a lot,” […]


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There are 28 comments at the moment, we would love to hear your opinion too.

  1. Typical of these buffoons thinking that a pension is a bank account and everything is free. Does the government flagship NEST offer drawdown?

    They fail to take into account the administration that has to be carried out everytime someone takes a one-off payment of ‘taxable’ income.

    However, just like a bank, if you think the charges are too high you can move your funds elsewhere.

  2. If the politicians think that drawdown is administratively simple and can be provided at low cost, then should they not be requiring NEST to offer it?

  3. All these politicians are taking ridiculously high charges from us the tax payers to talk this drivel.

  4. I suppose the question is…. assuming human involvement is needed on the part of the provider, do you factor in the cost of ad hoc admin and charge it against all drawdown investors irrespective of whether they make withdrawals or not (e.g. by increasing the annual contract charge and therefore penalise everyone) or do you directly charge those who create additional work due to the fact that they opt to dip in and out randomly therefore potentially necessitating more human intervention?

    Perhaps there are both options and the consumers (and their advisers) can decide the most appropriate outcome.

    Ultimately, perhaps successive Governments are to blame for the inflation over the last 100 years, the introduciton of minimum wage and the fact the nation has relatively good standards of leaving – all of which mean that people’s time (and therefore time cost) is such that they can’t work for free. Add to that the continual threat of misappropriation of monies, risk of fraud (theft?), liberation etc and the necessary regulatory costs and fees etc involved in operating in a regulated environment (HSBC anyone?) along with the threat of complaints being made ‘with 20:20 hinsight vision’ – everyone needs to take a step back and look at the big picture.

    This whole ‘knowing the cost of everything but the value of nothing’ situation is getting very repetitive.

  5. They believe Insurers should provide all the functionality for free! Do they not understand there is a cost for providing all of this? If the cost doesn’t come from those who wish to exercise these “rights” should it come from other policyholders or shareholders?

  6. Well there is the head line that readers will only focus on; “savers will be cheated on a daily basis” this kind of dirt never gets washed off !

    This ignorance from our leaders and MPs needs to change, they gave the regulators free reins to set their own budgets, collect levies, set ridiculous CA limits and use the financial sector as a cash cow, what do they expect !!

    Of course the cost of products, admin and advice is high, but its not of our making !!!

    Its not the industry that needs to have a charge cap its the FCA, FSCS, FOS MAS etc etc etc there is your problem !!

  7. There are undoubtedly some firms whose charges are suspect, but presumably they have done the math. The bottom line is that nothing is free, even our democratic system. Capping charges only serves to reduce the services provided and the innovation to create new solutions.

  8. Interesting to Google how much Lords members are paid (charge) for attending the Chamber each day… Talk about the pot calling the kettle black…

  9. I’m sorry to say that this is a prime example of a little knowledge is dangerous, but its worrying that these ill informed individuals have a influence in the passing of legislation. Yes, some plans do have the charges outlined for vesting and drawdown but these tend to be the more complex SIPP cases where the scheme assets are diverse, require individual valuation and where total fund size usually sits in the hundreds of thousands: Suggesting these might apply to a fund of £30,000 is ridiculous. Yes in an extreme minority of cases charges may be disproportionate to fund size but the products and services weren’t build with the pension freedoms in mind and the political spokespeople should understand that before spouting out their selectively researched facts.

  10. Whilst one can’t hold HSBC up as a paragon of virtue, you can see why they are saying “enough” and going where they can make money for their shareholders.

  11. I’ve just arranged for a 2nd withdrawal in 3 months for one of my clients – there were no charges levied for either transaction over and above the standard product amc. Perhaps these people have never had to shop around and don’t understand the concept.

  12. I agree with Martin Tilley. There are dozens of rules & regulations a SIPP providers has to follow , introduced by successive governments and this has not “made pensions simpler”. Withdrawals still have to be monitored between “tax free cash” payments and “drawdown” for taxation purposes. It is not a 5 minute job and the fees will reflect that!

  13. In the law on life there are 3 services…

    the cheap service wont be fast
    the fast service wont be good
    so it follows that the good service wont be cheap!

    • I always thought it was 3 options: Good, Cheap, Fast. You can only have two of the three. Fast Cheap (Shoddy), Fast, Good (Expensive), Cheap, Good (Not very Fast)

  14. Oh what exactly are they going on about are they talking about adviser charges or are they talking about product fees as they are two separate things.

    I would challenge anybody to do a drawdown case with two interviews in less then eight hours work and complete all of the paper work that is required.

    Maybe we should start talking about capping solicitor and barrister fees oh I forgot half the Lords are either solicitors or barristers, call me a cynic.

    Shall we say capping the cost of divorce at £500 no matter how complicated the cases for example.

    Oh I forgot that little thing about liability do solicitors remain liable for their advice while they clients remain alive!

  15. 🙂 it’s coming!

  16. Advisers hit out at Lords with ludicrously generous expense accounts.

  17. Julian Stevens 10th June 2015 at 4:37 pm

    Charges might well be lower if providers were to operate retirement funds the same way as they do ISA accounts. You want to withdraw a lump sum? No problem, no charge. You want to draw (monthly) 5% p.a. of the value of your retirement fund? No problem, no charge. You want to draw £X p.m. from your retirement fund? No problem, no charge. Does it need to be any more complicated than that?

  18. Don’t like the charges on draw down. Of course not – fund managers, advisers, platforms and goodness knows who else taking a bite. Easy solution: Buy an annuity. Guaranteed for as long as you (and your wife) should live with no investment risk. Only inflation risk.

  19. Julian Stevens 11th June 2015 at 8:20 am

    Buy an annuity and lock in for life to what are presently the worst rates ever. Great plan Harry.

  20. Richard Anderson 11th June 2015 at 9:21 am

    I don’t think that our politicians have the first idea about the nature and scale of the regulatory system that we have created (or that they have created) in this country. The aims are laudable (i.e. protecting consumers) but the associated costs are enormous (and I, like possibly many others, have to wonder if the light is actually worth the candle).

    Whether advisers or product providers, we all have the costs of staff, premises, computers and computer systems etc etc. None of these things are free and few of them are cheap.

    In respect of the provision of financial services we have created what may well be the most thorough regulatory framework in the world. It is designed to ensure that those who provide advice are suitably qualified. Alongside it we have created what may well be the most burdensome administrative requirements anywhere outside of a nuclear testing facility. Advisers remain liable for the advice they give for their lifetimes, and we have created a compensation system that costs hundreds of millions of pounds. This huge leviathan carries tremendous cost. If politicians expect financial services to be cheap then they need to carry out an ‘austerity review’ on the systems behind it. They, and consumers, can’t have it both ways. As Elaine Birch put it, ‘if it is good, then it won’t be cheap’!!

  21. Julian Stevens 11th June 2015 at 4:47 pm

    Governments always want it (from everybody else) both ways ~ the highest standards of everything for everyone but for peanuts. When it comes to what they themselves cost, though, it’s a very different story.

  22. Adrian Philips 14th June 2015 at 9:39 am

    If providers can’t make any money from providing drawdown they will stop doing it. That said, charges need to be reasonable.
    This is an area that is going to be under great scrutiny!

  23. Dominic Thomas 16th June 2015 at 9:40 am

    The issue isn’t whether there are charges, but whether the charges are fair, which of course is a relative term. Sadly our industry is reaping what it has sewn – the delusion that financial services is free. The prevailing view amongst SOME (not all) politicians, regulators, journalists and public appears to be that advice is low cost/cheap – presumably because they have not experienced any significant value from it themselves, that financial products should be cheap as administration costs very little, investment charges should be low because “Bankers” [please define] make too much money and that compensation should be high.. which is paid by someone else.

    The reality is that most people spend more on their mobile phone than invest into their pension. They spend far more time planning a holiday than planning for retirement. Insure their pets more than their income or buy an extended warranty on something of low value. At some point everyone has to wake up and smell the coffee, (beans in hot water) and recognise that many things in life need to be taken rather more seriously. Unfortunately, successive Governments have all been equally as hapless in modelling or encouraging a more honest and mature approach to money.

  24. A little knowledge is very dangerous. They (MPs and decision makers) need to be educated that advice, ongoing advice, administration, fund selection, income reviews, time, etc costs money and we also need to make a profit. I expect they will come back a say it will be capped at 1%, good luck with that then. I would then expect that initial fees will increase substantially with paid for annual reviews. Either way the clients will still need to pay for the fantastic service that IFAs provide!

  25. I agree with you Dominic. the clients dont work for free, we dont work for free ( although we’ve made it look like that) and the providers aren’t charities. fair charges are fair charges… equally tho, unfair/exorbitant charges need to be curtailed.

  26. Julian Stevens 17th June 2015 at 1:24 pm

    True simplification could reduce costs significantly. The trouble is that government departments rarely, if ever, know how (or, in practice, are prepared) to simplify anything.

  27. Can I have a Lord’s pension please?

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