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Which? calls for charge cap and nationalised drawdown provider

The Government needs to step in to protect consumers from expensive drawdown products by creating a Nest-style fund for post-retirement, Which? says.

The consumer group says it has found evidence of high charging drawdown products, including one charging 2.76 per cent.

Someone with a £36,000 pot drawing down £2,000 a year would save £10,300 under a 0.75 per cent charge cap, compared to 2.75 per cent, Which? says.

It says there needs to be a cap on fees levied on default drawdown products and a Government-backed “backstop provider” for customers to use in retirement.

Age UK backs the idea of a cap and a Labour-commissioned review in retirement products is exploring the concept.

Which? suggests customers who do not engage when deciding how to access their pension pot could be defaulted into the Government scheme.

It also wants the Financial Services Compensation Scheme extended to include drawdown.

Following the Budget, annuities sales have crashed while drawdown contracts are becoming increasingly popular among customers with smaller pension pots.

Which? executive director Richard Lloyd says: “It’s right that the Government is giving people the freedom to decide how and when they access their hard-earned pension savings, but deciding how to use these savings in retirement is one of the most complex financial decisions many will have to make and one they cannot afford to get wrong.  

“That’s why we want the Government to take action to secure better pensions so people have just as much protection when they take money out of their pension as when they put money in.”

Hargreaves Lansdown head of pensions research Tom McPhail says: “Which? has done good campaign work on behalf of consumers but on this occasion they are wide of the mark.”

He adds: ”It is premature to jump to the conclusion the market needs price caps or a nationalised service, when there isn’t any proof that the market can’t meet investors’ needs.”

Likewise, the ABI does not back a cap.

Director of long term savings policy Yvonne Braun says:  “A charge cap for drawdown products is inappropriate as solutions will vary between customers much more than at the savings stage. However, we strongly support action to prevent savers becoming victim to fraudulent pension scams and the Government, regulators and industry need to work together to combat  misuse of the pensions system.”



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There are 8 comments at the moment, we would love to hear your opinion too.

  1. Where do you stop? Soon consumers will know the price of everything and the value of nothing.

  2. Dominic Thomas 6th March 2015 at 9:18 am

    Yes, its sad that some people need advice and aren’t able to pay for it. Its also sad that many didnt (and don’t) heed advice to save for their retirement. Denial is such a wonderful state of mind, dont you think? Its also sad that some people will die shortly before or after retirement, whilst others live “too long”. Life is full of disappointments isnt it. Why don’t Which? start a free service (whilst taking full responsibility and liability) for the advice that they dispatch for drawdown/annuity… I’m sure that they are adequately qualified to provide expert insight having now done a few sums… and they must certainly be better than any UK Government, who invariably cannot balance the books each year, incurring a growing national debt which they invariably confuse with the national deficit. I’m sure that the average taxpayer won’t mind helping out those that have some small amount of savings who can’t be bothered to find out the right information for themselves and pay for it… yeah why not let the taxpayer pay.. after all there have been so few reminders about the value of pensions over the years and the need to review them… I mean, its not as though its a topic covered in the media ever, and nobdy has ever seen someone over the age of 65 and of course advisers and pension companies never send of information or valuations on a regular basis, do they?

  3. Why not go the whole hog and set up a nil charged National Accessible Drawdown Account aka NADA – or No Advice Don’t Ask (why your plan is inappropriate, underperforming or plain wrong!”)

  4. 2.76%? What does that even mean? How does it relate to an individual who has built up a fund of £36k? Would they necessarily be in such a contract anyway? The Which article on their website gives no more information. For all we know the figures have been calculated using the minimum fund size and unrealistic asset class investments with substantial fixed fees.

    The research might be helpful if they were transparent with their methodology.

  5. Remember the Stepford wives film, we are on the road to us all being Stepford Pensioners!

    And no wonder Labour want a big nationalised fund. Can you imaging what Ed Balls and his mob would do? A fund that could be squandered with the mayhem left for the next 2 generations to clean up. In quantum terms, it would make the Maxwell scandal equate to someone nicking the change from the milk money!

  6. You should not pay anything to get your own money out. It’s yours and nobody elses. You have paid enough fees over the years to the parasites.

  7. @ Martin

    That’s one point of view. What would you say if for example a Which? report had stated that some nursing homes charge £50k per year per patient with fee inflation north of 6% whereas a residential home might charge less than half that and that is what all homes should charge, not taking into account any difference in service or marginal costs?

  8. Have Which? published this research anywhere?

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