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Savers still failing to shop around despite pension reforms

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Just three in ten people who have used the pension freedoms shopped around the market for the best price, Citizens Advice research reveals.

The charity’s survey of 500 people found while 57 per cent of annuities were bought after checking other providers, only 39 per cent of drawdown products were bought following a shopping around exercise.

The figures take into account savers who fully cashed out their pension. Citizens Advice says these are included because some of these people wanted to go into drawdown but were prevented by their provider.

Stripping out this figure, the overall shopping around figure rises to 34.6 per cent.

When asked why they stuck with their existing firm, over a third said they trusted their provider, while 15 per cent wanted to avoid early exit charges.

In addition, the report shows around 160,000 people have paid fees when accessing their pension since the reforms took effect in April 2015.

Citizens Advice, which last month called for a £50 cap on exit penalties rather than the FCA’s 1 per cent limit, is calling on the Government to produce a tool to compare drawdown products.

Chief executive Gillian Guy says: “Picking a pension product is one of the biggest financial decisions people will ever make, so it’s worrying that so many aren’t shopping around.

“More and more consumers are choosing drawdown products but our research shows they aren’t checking whether they’re getting the best deal. The Government and industry needs to work together to make it easier for consumers to compare drawdown products and choose the one which best meets their needs.

“The threat of excessive charges can also put people off making the right pension choices for them. A standard £50 exit fee across all types of pensions will mean consumers can make the most of the pension freedoms.”

Association of British Insurers director of policy for long term savings and protection Yvonne Braun says: “Our latest industry figures, which measure what customers actually do, show that 58 per cent of savers switched provider when buying a drawdown product and 38 per cent switched when getting an annuity.

“A higher number of customers are likely to have shopped around but then found they were already with the best provider for them, so won’t have switched. We also estimate around half of customers who stayed have guaranteed annuity rates.”

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Comments

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  1. Gillian Guy – Just what planet are you working on. The freedoms legislation was never going to make more people shopping around. Human nature generally does not work that way. As for your marvellous idea of making drawdown easier for consumer to get the best deal is so outrageously naive. First off just exactly what do you mean about the “best deal”????? Highest initial income, highest sustainable income, best fund performance, lowest charges, best governance, excellent customer service, provider with the highest financial strength or great track record in TCF or complaint handling? Come on please do not tell me you actually think that a customer will ever be able to do this and come to an informed decision.
    The ONLY WAY you will improve the rates of people shop around (or get a perceived improvement, as the FCA like perceptions) is to make shopping around mandatory and have them confirm they have shopped around before making their purchase. This way they just may just do it. In reality a lot of them are more likely to simply confirm they have done so even though they won’t have bothered. You really need to stop dreaming about how things work in real life. YOU CANNOT PROTECT ALL OF THE PEOPLE ALL OF THE TIME. As for your comment “The threat of excessive charges can also put people off making the right pension choices for them. A standard £50 exit fee across all types of pensions will mean consumers can make the most of the pension freedoms.” Do you seriously want to put a lot of providers out of business? It is bad enough that he FCA has now decided on a max 1% exit fee on existing contracts. Nothing like a bit of retrospective legislation to impose huge costs on the industry. Whilst I agree some exist fees are big, a legally binding contract is a legally binding contract (except in UK financial regulation).

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