With the recently introduced pension freedoms has come an accusation that some consumers are being charged “rip-off” pension fees for managing the withdrawal of funds from their pension pot.
The new freedoms mean that retirees have alternatives to the traditional route of purchasing an annuity policy with their pension pot. Alternatives now enable the withdrawal of a larger capital sum, which the media was quick to suggest could be spent on fast cars; but there are plenty of other choices, such as putting the capital sum into a flexible Stock Market investment portfolio.
However, some providers stand accused of charging excessive exit or transfer fees, should customers want to move their funds. The Consumers Association, through its Which? magazine, is calling for a cap on fees charged.
“If the pension reforms are to be a genuine success, the Government must take action to make sure everyone who wants to take advantage of the freedoms can,” said Which? executive director Richard Lloyd. “People should be able to switch without being stung by excessive exit fees if their provider doesn’t offer the full flexibilities. The Government should also consider what other reforms are needed to further protect savers, including a charge cap on default drawdown products.”
A consultation is currently under way by the Government, who will be considering whether there needs to be further regulation or safeguards, to prevent investment returns being diluted by costly fees.
In the meantime, it is always worth asking a professional pensions adviser whether your pension investments can be moved without being charged unreasonable fees; and whether a move to a new type of investment will actually meet your upcoming financial needs. Each personal circumstance tends to be different, and at DPT we are very familiar with the issues such a review will typically raise.