The price disparity between income drawdown products under the pension freedoms could amount to £3,000 over a decade, according to research by Which?.
The consumer watchdog analysed 10 investment brokers and 8 insurance companies and found that a person drawing 4% a year from a £50,000 pension could save more than £3,000 over 10 years if they chose the cheapest provider.
The cheapest provider in the current market offers income drawdown products for £4,993 while the most expensive costs £8,100.
A pensioner drawing 6% a year from a large pot of £250,000 could be charged anywhere between £16,325 and £26,490 over 10 years – a difference of more than £10,000.
Of the 18 companies surveyed:
- 6 charge customers to set up a drawdown plan
- 7 levy an annual fee for using drawdown
- 8 charge fees for customers with self-invested personal pensions
- 7 charge a single annual fee but some levy annual management charges and fees for certain investment types.
Which? is calling on the government to introduce a cap on default drawdown charges sold by a customer’s existing provider, and for the Financial Conduct Authority to simplify charges.
Richard Lloyd, executive director at Which?, said:
“The old annuity market failed pensioners miserably and the government must ensure the same thing doesn’t happen again with the drawdown.
“With such big differences in cost, and confusing charges that make it difficult to compare, it’s clear more needs to be done to help consumers make the most of the freedoms.”