£13k rip-off fees for savers who cash in their pensions
SAVERS who have cashed in their pensions under new freedoms are losing up to £13,000 in rip-off fees.
About 100,000 savers are at risk of ‘complex and opaque’ charges levied by insurers when they begin to withdraw money from their pensions, a report by the City watchdog found.
In the worst cases, customers are being stung with up to 44 separate charges, the Financial Conduct Authority found.
It said some pensioners were overpaying by as much as £650 a year on a £100,000 pension pot – or £13,000 over a two-decade retirement.
On top of this, the watchdog warned that 50,000 savers are missing out on a third of their potential retirement income – or about £1,500 a year – because their money has been moved into a poor-value cash fund that pays little or no interest.
To boost their income, they would need to invest in funds linked to the stock market. Experts say this type of investment is often more appropriate for someone entering a typical 20-year retirement.
The FCA yesterday announced plans for tough rules to protect customers falling victim to the retirement rip-offs.
The crackdown could include a cap on fees; forcing insurers to spell out charges in pounds and pence, and banning them from automati- cally moving customers into poorvalue cash funds in retirement.
It marks a victory for Money Mail, which has campaigned for fairer charges on so-called drawdown pensions, and whose investigation first revealed last year that customers were having £13,000 gobbled up by expensive investments.
Campaigner and former pensions minister Baroness Ros Altmann said: ‘I am really pleased the FCA is taking action. All the problems that have plagued pensions for many years are now emerging in the drawdown market.
‘Insurers are doing so well from these deals, while savers often don’t know what they are doing. This could have been another scandal but customers deserve better.’
Christopher Woolard, of the FCA, said: ‘We know that the choices introduced by the pension freedoms have been popular with many consumers. However, they are now required to make more complicated decisions than ever before.
‘The measures we have outlined today will help them think about that earlier, create investment pathways to help them with their choices and make costs and charges easier to understand.’
Huw Evans, director-general of the Association of British Insurers, described the FCA’s plans as a ‘common sense approach’.
He said: ‘It should strike the right balance between engaging customers in decision-making while taking away some of the complexity.’
‘Insurers doing so well from the deals’