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30 Sep 2015

Retirees still uninformed about drawdown charges

Pension drawdown providers have come under attack by others in the industry for failing to properly inform retirees about their charging structures, City Wire reports.

Rather worryingly, there remains a “low awareness” among consumers about pensions in general, as well as their new options brought about by the pension freedoms announced earlier this year.

After the new freedoms were unveiled, more than 200,000 people accessed their pension pots – the majority (80-90%) of whom used some type of drawdown product. However, Holly MacKay, head of financial website Boring Money, told the publication that even she finds it impossible to compare drawdown costs.

“When it comes to comparing drawdown costs, I can´t actually do it,” she said. “I have been doing [price comparison on financial products] for a long time and trying to work out the cost of setting up drawdown and managing the money in a certain way, comparing like-for-like, is impossible.”

A Which? report earlier this year found that the difference between the cheapest and most expensive drawdown product could cost an additional £10,000 over the course of a person´s retirement – so making ill-informed decisions could cost them a lot of money.

Although the government has been called on to implement a cap on drawdown charges, as has already been done with auto-enrolment schemes, MacKay predicts that the Financial Conduct Authority (FCA) will soon get involved.

If drawdown providers fail to make their drawdown charges more transparent, the regulator could step in and introduce stricter rules on the matter and perhaps launch a pension freedom model much like the one used in Australia.

Copyright © M2 Bespoke 2015

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