Pension FAQ: Retirees Blinded From High Pension Withdrawal Costs
Many retires could not make proper comparisons between drawdown charges because providers are quite opaque with their structures. People understand the new pension freedoms give them a chance to get a lump sum or annuity guaranteeing regular income until their death.
Plenty of retirees are advised to obtain the expensive services of financial managers. However, they stand to lose the same amount to drawdown charges post-service, making the entire pension freedoms cost as much as a lump sum upon withdrawal
The £10,000 Difference
According to consumer champion Which?, drawdown costs differ by £10,000 over retirement. About 80 to 90 per cent of the UK’s retiree population fell prey to a drawdown product that had them at a greater loss.
Holly Mackay of Finance Blog Boring Money said the impossibility of comparing charges is attributed to drawdown providers hiding many hidden charges to ascertain a final price for retirees. She advises the UK adopt a similar pension freedom system from Australia to establish firm rules over drawdown charges.
Upon early withdrawal, pensions are subject to huge income tax that is unregulated.
Drawdown Cap on Pensions
The FCA is expected to step in and place a drawdown cap to avoid losing majority of pensioners’ benefits to make charges easier to understand. According to Mackay, a consistent scenario would help people understand drawdown charges quicker and better.