Pension pot dippers could pay a fortune in fees

Emma Woollacott
gold coins in a jam jar. the...
gold coins in a jam jar. the...



Savers hoping to take advantage of their new ability to dip into their pension pots could end up losing a quarter of their money in fees.

In a report commissioned earlier this year, Professor David Blake, Director of the Pensions Institute at the Cass Business School, warns that someone with a pension pot of £30,000 could lose as much as 27% of it through administration and investment management fees.

It suggests that administration charges could average £400 a year,plus £30 for every withdrawal made.
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And, speaking to the Telegraph, Blake warns: "Sensible people who are trying to make their pension last are the most at risk from high charges as, over a 20-year horizon, large sums could be removed from their funds."

The pensions reforms announced earlier this year mean that, from April, the over-55s will be allowed to dip into their pension pot like a bank account, rather than having to use the money to buy an annuity. Around 320,000 people are expected to take advantage of new flexibillity.

But, warns Blake, "If people think annuities were poor value, that could be nothing compared to the cost of flexible pension plans."

From April, there will be a cap of 0.75% on workplace pension schemes - but no such cap for income drawdown schemes. In his review, Blake says he plans to consider introducing a cap on these charges, a decision welcomed by Labour.

"Labour welcomed the new pension flexibilities announced in the budget, but we are concerned that the government has not thought through the risks of rip-off charges being taken from the savings of hardworking people," says shadow pensions minister Gregg McClymont.

"I welcome the announcement by David Blake's Independent Review of Retirement Income that they are studying the case for a new charge cap on pension products offered to savers by their pension provider to replace annuities."

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David Cameron Hints at Protecting Benefits for Wealthy Pensioners
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The TUC, too, is concerned that pensioners may unwittingly end up handing over too much of their hard-earned cash in administration fees.

"The annuities market was broken, but the government's plans risk undermining pensions saving altogether, rather than providing savers with the products they actually want," says general secretary Frances O'Grady.

"There is an urgent need to ensure that low and middle earners who are starting pension savings thanks to automatic enrolment can turn them into reliable income in retirement. The review is an opportunity to take the considered approach needed to solve this problem."

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High fees are not the only danger for people hoping to tap into their pension pot. There are tax implications that could trap the unwary, for example.

It's also been revealed that people withdrawing cash from one pension will have to inform any other insurer they have a pension with within 31 days - not always as easy as you might think - or face a £300 fine.

Read more about the new pension rules on AOL Money:

Pension changes 2015: you could be hit with a fine

Pension changes 2015: could you face a tax shock?

Pension changes 2015: confused into taking poor deals