Some retirees see more than £12,000 sapped away in charges by managing their pension with the most expensive companies, exclusive new research from Which? reveals.
Savers pulled £15.3bn from their pension via drawdown in 2016/17 - triple the amount from the previous year.
In the worst case, our research suggests that a pension pot of £250,000 at retirement invested through Standard Life's drawdown offering would incur costs in excess of £38,000 over 15 years.
The same pot invested in the same funds with DIY broker Interactive Investor would end up costing £12,101 less.
We surveyed more than 20 providers of income drawdown to understand the different charges they levied to keep your money invested in retirement.
We then applied a scenario to this. If we had £250,000 in our pension, invested across three popular funds, and we:
how much would we have left after 15 years. And - crucially - how much would we have paid out in fees and charges?
The results were startling.Total charges over 15 years for the three most expensive companies in our investigation - Standard Life (£38,144), Aegon (£37,157) and Halifax Share Dealing (£36,081) - were between £10,000 and £12,000 more expensive than the most competitive operators in our analysis, .
Standard Life applies a high 'whole fund' admin charge of 0.55% for pots of between £100,000 and £249,999 (immediately applied after the first income withdrawal in our calculation), while Aegon charges between 0.45% and 0.60% on an 'income tax band' basis on funds less than £250,000, but 0% on funds above that.
Halifax Share Dealing combines hefty fixed fees with above-average fund charges. Pension firms generally proved more expensive in this scenario, taking five of the bottom six slots, but there were less pricey exceptions such as Old Mutual and Royal London.
You can see the full results in the table below.
|Company||Name of product||Type of company||Total cost over 15 years||Fund amount left after 15 years|
|Interactive Investor||Sipp||Fund supermarket||£26,043||£184,703|
|Close Brothers||Sipp||Fund supermarket||£26,468||£184,011|
|Alliance Trust Savings||Sipp||Fund supermarket||£26,620||£183,996|
|The Share Centre||Sipp||Fund supermarket||£27,433||£183,381|
|AJ Bell Youinvest||Sipp||Fund supermarket||£29,494||£181,304|
|Charles Stanley Direct||Sipp||Fund supermarket||£30,046||£180,771|
Which? Money had to incorporate some assumptions into our calculations - the timing and sequence of charge deductions, the growth applied to the funds, and so on. We used the same method for all providers to be fair and consistent.
One of the major barriers to a straightforward comparison of pension drawdown costs is the fact that companies have wildly different charging structures.
You may incur five or six separate types of fee each year depending on the provider you opt for.
These could include drawdown set-up charges, annual administration charges, platform charges and fund fees, while there may be additional dealing commission for trading shares and, occasionally, funds too.
The consequence of higher charges is having significantly left to live on in later life.
Paying total fees of £38,000 would leave a diminished fund of £173,000, despite investment growth and factoring in sizeable annual withdrawals. The same pot with the lowest charges available would be worth nearly £185,000 at the end of the same term.
The lack of a way to effectively compare charges has undoubtedly contributed to inertia. Which? agrees with the FCA's assessment that it should be much easier for retirees to compare drawdown products - our research proved how difficult this is.
People should be able to make an informed decision, but currently it is extremely hard to compare different fees when they are presented inconsistently and with varying clarity.
'Providers should be more transparent about their fees so that people can find the best deal. The FCA must introduce a charge cap on default products to ensure that consumers don't miss out on the savings they need for retirement.