Savers are put off switching drawdown providers when they retire because of a dizzying array of charges and difficulties comparing costs, but those who do switch could save up to £20,600, new Which? Money research reveals.
We analysed hundreds of fees across 28 providers to find out what impact complex have on pension pots and how much money would be saved by switching providers when it's time to turn pension savings into retirement income.
While keeping your money invested means that it has the opportunity to grow, the opposite is also true.
Which? Money estimates that £250,000 invested through Aegon's Retirement Choices product (the most expensive option for this fund size in our analysis) would incur charges of more than £47,000 over 20 years - £12,300 more than the cheapest option.
This means that savers could be left with a much smaller fund at the end of the 20-year period: £154,000 with Aegon compared with £165,300 at Interactive Investor and Halifax Share Dealing.
However, as Aegon doesn't charge at all on funds above £250,000, it becomes more competitive for those with larger amounts.
Our analysis is based on someone investing solely in funds with a typical cost of 0.7%. It assumes that these investments grow by 4% a year and that the customer withdraws 5% of the pot each year as income.
The difference on a pension worth £500,000 at retirement is even starker. An Interactive Investor customer would have paid charges of £62,700 after two decades in retirement compared with £83,300 with Hargreaves Lansdown.
Aegon said: 'Our standard-rate card is not representative of the charges the average customer pays. Terms are negotiated with advisers and customers with the vast majority paying significantly less.
Hargreaves Lansdown responded: 'Our fees are tiered and the average levied falls as clients' pensions rise and meet various valuation milestones. Our pricing is very simple, transparent and great value for the services offered. Charging as a percentage encourages people to invest for the first time and build their pension pots.'
Intricate and confusing charging structures make it very difficult for savers to work out what they need to pay, or to compare costs between companies.
When we set about gathering information on charges for our analysis, not all of it was in the public domain - researchers had to scour website pages designed for advisers rather than consumers, and to approach pension companies directly to get the full detail it required for the comparisons.
Opaque and unclear charges may explain why three fifths of drawdown customers stay with their existing pension provider when they need to start taking an income in retirement, despite being free to switch companies at any point.
Last year, Which? called for improved transparency on pension charges, including requiring pension providers to show customers how much they have paid in fees each year and to annually report scheme costs and charges to regulators.
Much-needed changes are in the pipeline that should make charges clearer - including the requirement for drawdown providers to show charges as a single pounds-and-pence figure on pension statements each year.
But it's not yet clear whether the regulator will introduce a cap on charges for non-advised customers accessing drawdown products. Which? believes this would help prevent people from sleepwalking into excessive fees at retirement.