The difference in charges between the cheapest and most expensive companies offering income drawdown under the pension freedoms could total £3,000 over 10 years, according to research by Which?
Its analysis of eight insurance companies and ten investment brokers offering full pension freedom found that an individual with a pension pot of £50,000, taking 4% a year through income drawdown, could save more than £3,000 over 10 years if they used the cheapest provider, Fidelity (charging £4,993) rather than the most expensive, The Share Centre (£8,100).
Meanwhile, someone with a larger pot of £250,000, who withdraws 6% a year, could see a difference of more than £10,000 in charges over a 10-year period between the cheapest provider, LV (£16,325) and most expensive, Scottish Widows (£26,490).
The research found that, of the 18 respondents, six charge to set up a drawdown plan, seven charge an annual fee for using drawdown and eight charge an annual fee for individuals that have a self-invested personal pension. In addition, seven charge an annual platform fee, although some may incur annual management charges and additional fees for some types of investment on top of these.
Which? also found differences in the fees charged for taking uncrystallised fund pension lump sums (UFPLS).
For example, Charles Stanley Direct charges £270 for the first withdrawal each year, James Hay charges £100 and Barclays Stockbrokers, Halifax Sharedealing and TD Direct each charge £90. Other organisations, including Fidelity, Hargreaves Lansdown and some pension companies, meanwhile, do not charge a fee.
Richard Lloyd, executive director at Which? said: “The old annuity market failed pensioners miserably and the government must ensure the same thing does not happen again with drawdown.
“With such a big difference in cost, and confusing charges that make it difficult to compare, it’s clear more needs to be done to help consumers make the most of the freedoms.
“We’re campaigning for a cap on charges for drawdown products sold by someone’s existing provider to ensure people get good value for money.”
Tom McPhail, head of pensions research at Hargreaves Lansdown, added: “The only sustainable answer is that we have a transparently competitive retirement market where informed investors shop around for the solutions which will suit them bet.
“Drawdown isn’t just about the price, it is also about putting investors in control of their money and giving them access to online tools and calculators to help them manage their money effectively.
“The risk with a price-capped default drawdown is that investors won’t be sufficiently aware of the risks they face of investment losses or of drawing their money out too quickly.
“We would like to see the barriers to pension freedoms removed so that investors who have shopped around can move their money cheaply and quickly, without having to pay unreasonable exit penalties.”
