Pension freedoms 'need safety net'
Stronger safety nets are needed to protect people taking up the government's new retirement freedoms which come into force one month from today, Which? has warned.
The consumer group's research found that people could potentially be thousands of pounds worse off if they are sold an inappropriate retirement product.
Which? has launched a "better pensions" campaign to help everyone get access to good value, low cost pension products.
From April 6, people aged over 55 will be able to take their defined contribution (DC) pension how they want, when they want to, which could be all in one go or in a series of slices. They will no longer feel forced to buy a retirement income called an annuity with their pension savings.
Which? said the changes will make it likely that more people will use income drawdown products which allow them to take money out gradually each year. But its research uncovered a lack of product innovation in this market, with big variations in charges, which it found could be as high as 2.76%.
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Someone with an average sized DC pension pot of £36,000 and drawing out £2,000 a year would end up around £10,300 better off over the course of their retirement if the cost was capped at 0.5% than they would be if they were charged 2.75%, the consumer group has calculated.
Which? wants to see a charge cap for drawdown products sold by a customer's existing provider where the consumer does not exercise an active choice.
Its campaign is also pressing for a low cost, high value "backstop" scheme for people to use in their retirement to be set up.
The scheme would lay the foundations for minimum standards in a similar way to Nest, which is used as a low cost option for people being automatically enrolled into workplace pension saving. The new backstop provider would develop flexible products that match retirees' needs, Which? said.
Free and impartial guidance to help people decide what to do with their pension pots will be offered alongside the reforms under the branding Pension Wise.
But it is not yet clear how many people are likely to take this up. Which? said that if customers fail to engage properly with making a retirement decision, or if the market fails to provide real choice and value, the government should assess whether consumers who do not make an active choice could be herded by default to the backstop scheme.
The consumer group also wants to see the Financial Services Compensation Scheme (FSCS), which acts as a safety net for savers if their financial services firm goes bust, extended to cover drawdown products.
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Which? executive director Richard Lloyd said: "It's right that the government is giving people the freedom to decide how and when they access their hard-earned pension savings, but deciding how to use these savings in retirement is one of the most complex financial decisions many will have to make and one they cannot afford to get wrong.
"That's why we want the government to take action to secure better pensions so people have just as much protection when they take money out of their pension as when they put money in."
People can sign up to the campaign by going to the Which? website.
Read more on AOL Money:
Could new freedoms be the end of pensions?
Billions of pension cash could be trapped next year
Tax-free lump sum: what new freedoms mean
