Evidence suggests pension providers are profiting from not being clear with all the retirement choices open to their savers
Retirement Investigation Reveals Shocking Practice
The result of a recent retirement investigation by The Daily Telegraph found that around half of Britain’s top 20 pension providers purposefully ignored some of the choices open to savers at retirement.
All of them heavily featured retirement annuities, an area currently under investigation by the financial watchdog. In 2013, almost 400,000 gave up their pension funds in exchange for an annuity, many of whom could potentially lose thousands of pounds compared to choices they weren’t offered to them.
The primary alternative to annuities is income drawdown. One major insurer reluctantly agreed that people with £50,000 or more should have at least considered this option, which could see them take as much as the whole pot in cash.
Around 20% of the people who made their retirement choices last year had pension funds of £50,000 or more. Yet having bought an annuity, they were stuck with it for life, no matter how much better off they subsequently discover they could be, had they selected income drawdown.
Former Government consultant Ros Altmann said: “The system is stacked against the customer; it is biased toward people getting the best rate on an annuity immediately, rather than the most appropriate route to retirement income for them.”
It’s Your Right At Retirement To Leave Your Money Invested
Damning figures from the retirement industry revealed the extent of what is rapidly becoming a scandal. In 2013, just 57 income drawdown contacts were taken out each day, compared with around 1,000 retirement annuities. That’s under 6% of people taking income drawdown, when as many as 20% could be better off with this retirement option.
A further sign of this biased approach to annuities was exposed in a survey from Your Money. It discovered that many of their readers who had made their retirement choice felt they were forced into buying an annuity. Some people complained they were actually blocked from taking advantage of income drawdown.
What Is The Best Retirement Option?
In general terms, people with SIPPs have larger pension funds. But that doesn’t automatically mean income drawdown is the right choice. No matter how large your fund might be, if you want the certainty of a fixed income, with no nasty falls in your income in years to come, a retirement annuity is often the better choice.
Like everything financial, there’s no simple answer as to which option is best for you. But one thing is certain. Unless you’re given full and free access to all of the retirement options open to you, there’s a very good chance you’ll pick one that isn’t necessarily in your best interest. And that could cost you a fortune during your retirement. Worst still, your loved ones could miss out on tens of thousands of pounds of an inheritance if you make the wrong decision.
At the point of your retirement, your pension fund could be one of the largest pots of money you’ll ever have in your life. With a variety of annuity options open to you, and a number of different ways of accessing retirement income through income drawdown, you need to spend time on research.
For retirement annuity figures, in addition to collecting figures from your pension provider, you should also seek quotes from the online comparison services. Bear in mind, though, they earn their money by way of commission, which could reduce your pension pot by as much as 6%. With that much commission being extracted from hundreds of thousands of annuities purchased each year, it’s no surprise that many new annuity comparison services have arisen in recent times, including those from Tesco and Virgin.
For larger funds, it’s worth consulting an independent pension specialist. But instead of paying for their service by way of a percentage of your fund size, you should find you keep more of your pension fund, with a consequent boost in your retirement income, if you pay for advice on an hourly basis.
Discover All Your Retirement Options From SIPPclub
Whilst we can’t give you personal advice as to what retirement choice is best for you, we can certainly provide you with factual information about all your options. That way, you won’t miss the one that could be the most profitable for your retirement. Get in touch with us if you’d like the information.
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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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