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.”