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Beware sharp difference in pensions charges in retirement savings planning

21 May 2019

High pension drawdown charges could cost an investor with £100,000 as much as £32,000 in retirement income, AJ Bell has warned, as the latest analysis reveals a sharp difference in charges.

According to the Financial Conduct Authority, total charges in pension drawdown can range from 0.4% to as much 1.6%. This means those investors paying the highest charges could potentially run out of money, the pension specialist said.

Tom Selby, senior analyst, AJ Bell, commented: “High charges are a slow, lethal killer when it comes to making the most out of your pension in retirement. Savers should shop around the market to get the best deal possible, and stay on top of their retirement pot by reviewing it regularly. The good thing about drawdown is that you aren’t locked in, so if you want to switch investments or provider you are free to do so at any time.”

Selby said a 65 year old with a £100,000 pension pot who starts withdrawing £5,000 a year from their fund, assuming a 5% investment return each year, would see the fund run dry by age 92 on a 0.4% charge. In contrast, a charge of 1.6% could result in the fund being depleted by age 88.

Selby added: “Charges are not the be-all-and-end-all, but it is an indisputable fact that by keeping costs as low as possible, savers can squeeze thousands of pounds more out of their hard-earned pensions.”

A survey carried out by AJ Bell found that almost a third (30%) of people who had entered drawdown since April 2015 had no idea what had happened to their fund since.

Selby said investors should keep a close eye on both costs and charges, regularly reviewing everything from provider and the amount being withdrawn down to investment choices.

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