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26 Nov 2014

Charges Will Shave 27% Off New ‘Flexible´ Pensions

Savers are being warned that next year´s new flexible pensions could leave them with less than expected, due to losing more than a quarter of their money to fees, the Telegraph reports.

As of April 2015, those over 55 will have full access to their pension pots and will be able to take as much as often as they choose. However, new research has raised concerns about ‘rip-off´ fees that will take place under the reforms, prompting an inquiry into the issue.

According to Professor David Blake, an academic at Cass Business School, “if people think annuities were poor value, that could be nothing compared to the cost of flexible pension plans next April.”

“Sensible people who are trying to make their pension last are the most at risk from high charges, as over a 20-year horizon, large sums could be removed from their funds,” he explained.

Professor Blake is now planning to call on pension companies to declare how much they are going to charge savers who make regular withdrawals from their savings.

Pension companies have announced that they will begin offering “flexible drawdown” policies next year. The Telegraph´s own research has found that firms would charge, on average, more than £300 to set up a pension plan of this kind.

As well as this, customers face £400 a year in admin fees – some companies even intend to charge £30 per “unplanned” withdrawal.

Overall, customers would also lose around 1% of their fund each year to management fees. The House of Commons library found that this would wipe 27% off the average fund invested in a flexible drawdown plan, throughout a person´s retirement, based on those with a savings pot of £30,000.

With this in mind, experts are urging savers who plan to use their pensions flexibly to “shop around” for the best deals.

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