How does your pension stack up, as research by Citizens Advice reveals people are paying over the odds in charges or selecting pensions that don’t offer the best value for money?
Building A Pension Fund Can Take 40 Years, Yet Citizens Advice Has Discovered Some People Have Been Charged Outrageously High Exit Fees As They Access Their Money - Equivalent To Four Years Of Saving!
Citizens Advice Pension Research Findings
New research by consumer charity Citizens Advice reveals that seven in 10 people who have accessed their pension since pension freedoms were introduced in 2015 didn’t shop around to check whether they were getting the best deal.
Here are four worrying findings from the Citizens Advice research:
- Almost a quarter of people stayed with their pension provider because they believed their pension delivered the best value, despite not looking at any other options.
- Over a third of those people questioned trusted their existing pension provider, without speaking with any other provider.
- Just under a third said it was the easiest way to access their savings, irrespective of the fact they might be better off elsewhere.
- More than one in seven people didn’t switch providers to avoid exit charges, but they failed to check whether an alternative provider might offer a better deal even after exit fees had been deducted.
Research by Citizens Advice also revealed 160,000 people have paid exit fees to access their pension money. Those with the smallest pots have been hardest hit, with some people paying shockingly high fees of up to 10 per cent of their fund value.
As a result of this questionable practice, the FCA has recently proposed to cap exit fees for current pension schemes at 1 per cent of the fund value. But Citizens Advice believes this is too high and is calling for a standard £50 charge to cover the provider’s administration costs.
Citizens Advice On Annuities And Drawdown
Experts have long expressed the importance of shopping around when it comes to buying an annuity, for fear of missing out on a considerable amount of on-going income. As a result, there are now many comparison services available, including this one from the Government’s Money Advice Service.
Now fears are growing that savers who choose not to buy an annuity, but instead prefer to leave their money invested in drawdown aren’t checking for the best deal, suffering what could be penal levels of charges for years into the future.
Citizens Advice Chief Executive Gillian Guy
Picking a pension product is one of the biggest financial decisions people will ever make, so it’s worrying that so many aren’t shopping around.
More and more consumers are choosing drawdown products but our research shows they aren’t checking whether they’re getting the best deal. The Government and industry need to work together to make it easier for consumers to compare drawdown products and choose the one which best meets their needs.
The threat of excessive charges can also put people off making the right pension choices for them. A standard £50 exit fee across all types of pensions will mean consumers can make the most of the pension freedoms.
Responses From The Citizens Advice Research
Here’s a snapshot of a few telling comments from the Citizens Advice research.
I just went with my existing provider because they were so efficient.
I got other quotes, but ultimately decided rather than the hassle of moving it, which could apparently take six weeks, I just wanted to crack on with it and forget about the whole thing as it was so boring by then, so I stayed. That's partially inertia, but a lot of the times it’s better the devil you know with these things.
I had the three offers in front of me, because I thought, "I can’t cope with more than three". I was comparing their charges, the kind of funds they had, the returns they’d had on the funds. It was all incredibly boring, I was completely sick of it.
I found the whole process for me was heavy going, and I’ve been an accountant for 30 odd years. It was done to serve a purpose - they don't want you to take your money out.
Thoughts From The Citizens Advice Research
The Citizens Advice research seems to reinforce the fact that it pays to get to know every aspect of your pension.
Over the 40 years or more of your working lifetime, during which your pension fund is growing, amounting to more than 350,000 hours, surely you owe it to yourself and your family to spend a few hours checking how your pension works and what it costs to run compared to others. After all, you could live for more than 200,000 hours in retirement, so even if you dedicate a whole day to the analysis, it’s almost certainly going to be time well spent.
If you don’t have the time or the inclination to do it yourself, don't do nothing. Consider employing the services of an independent financial adviser to do it for you. The fee you'll pay is likely to turn out to be a fraction of the extra money they might find for you.
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Over time, charges can wipe out a huge part of your fund. We like AJ Bell because there are no set-up costs. If you hold passive funds, which is our preference, or shares, investment trusts, EFTs, gilts or bonds, you pay one small fixed fee no matter how large your fund. And when you come to draw your benefits either as occasional drawdown or UFPLS payments, there's a small charge for the whole year no matter how many times you access your money (many SIPP and SSAS providers charge more than this for each payment). However, you should always compare charges in detail, because AJ Bell could be more expensive than other providers, depending on the type of stockmarket assets you hold.
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