Rip-off pension fees that can leave you £10k out of pocket

Study reveals huge costs of getting your cash

SAVERS who cash in their pensions are facing a ‘ bewildering array’ of rip- off fees which can vary between providers by as much as £10,000 over a decade, a study has revealed.

Since april, over-55s have been able to use their pensions ‘like a bank account’ by withdrawing all or part of their pensions.

But the first in- depth analysis of the most radical pension reforms in a century found the amount gobbled up in fees by providers could leave some savers ‘unfairly penalised’.

the damning report by consumer group Which? analysed fees charged to withdraw cash from a £250,000 pension on a regular basis over a decade, while the rest stayed invested.

they found Scottish Widows charged nearly £26,500 in fees – over 10 per cent of the original pot – compared to just over £16,300 with insurer LV =.

aviva and Prudential also charged ‘ huge’ fees of more than £25,300.

even with a more modest £50,000 pot, the difference in withdrawal fees between providers varied by as much as £3,000 over ten years.

Which? revealed savers were being charged up to five types of fees on a single pot, including up to £280 in set-up charges, £270 every time someone made a withdrawal, and £3,000 in annual management fees.

the report – which looked at six pension companies and 12 investment brokers – comes days after it emerged that savers have withdrawn £1.8billion from their retirement funds in the two months since george osborne’s pensions revolution came into effect.

Savers can cash in their pots by either taking lump sums as and when they like, or setting up a regular cash withdrawal while keeping the rest invested – known as drawdown.

however, many cannot enjoy these new freedoms because their pension provider does not allow such flexibility, and they are then billed huge fees to move to one which does. in other cases, they are being forced to take out expensive financial advice before their insurer will let them get their cash.

as a r esult, MoneyMail launched a Play fair on Pensions campaign, which helped to spark a treasury review into the high fees which will start this month.

richard lloyd, of Which?, said: ‘Pensions providers failed their customers miserably with old annuities and the government must now ensure the same thing doesn’t happen with drawdown.

‘the baffling differences in costs and charges make it difficult to compare products, so more needs to be done to help over-55s make the most of their new-found freedom.

‘We now want to see a cap on charges for drawdown products sold by someone’s existing provider to ensure people get good value for money.’

Paul green, of over-50s firm Saga, said: ‘george osborne is doing the right thing and trusting people with their money.

‘But the big question is can people trust pension firms to treat them properly and not use the freedoms as an opportunity to extract more profit?’

andrew tully, of pensions firm retirement advantage, said: ‘it’s vital that we encourage consumers to shop around.’

Yvonne Braun, of the association of British insurers, encouraged savers to use the government’s f r ee Pension Wise guidance service, and for those with larger pots to consult independent financial advisers.

a Scottish Widows spokesman said: ‘ the Which? analysis is inaccurate and significantly misrepresents our charges.’

the company said it supported calls by Which? for a 1 per cent total cap for existing customers and already applied this.

a spokesman for Prudential said: ‘ Comparing charges can be misleading if it’s not done on a “like-for-like” basis. for example, fund charges for actively managed funds will cost more than for those of passively managed funds.’

a treasury spokesman said: ‘the government is determined to address any barriers that people encounter when trying to access their pension savings flexibly – that’s why we are launching a consultation to look at excessive early exit charges and how transferring a pension to another scheme can be made easier.’

Mr osborne has warned the government could take steps to cap excessive charges after the review is completed.

Comment – Page 14

‘Baffling differences’