Large fees threaten new pension pot rules

Not all pension pots will be treated equally. But it's not all bad news...

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That carefully accumulated pension pot could be hit by fat fees - as much as 20% in some cases - if you're planning on taking out your pension fund from next April. Those hit hardest are likely to have older-style pensions that may have been opened during the 1980s and 1990s.

The charges mean some of the new pension freedoms created by chancellor George Osborne, with much fanfare earlier in the year, could carry a very nasty sting indeed. What do you need to check for?

How laziness could slash your pension by 12%

Back in April George Osborne announced new pension legislation that would mean those over 55 can access their pension pot, rather than being forced to take a fixed annual income via an annuity come retirement.

The changes mean you can either withdraw all the cash straight away, leave it invested or buy an annuity. However some charges on older pensions could thump your pension pot, depending on your provider, and what charges they may attempt to apply to it.

Don't lose out on up to 73% more annuity income

Some of the charges won't be immediately obvious - much of the charges detail will need careful unearthing. That, says financial adviser Alan Solomons from London-based Alpha Investments and Financial Planning, means caveat emptor.

"Yes, the government can change the law and say there's less downside for taking your pension early. But you've then to look at what you bought exactly, not just in terms of exit charges but what terms may be attached - which might not be to the benefit of the insurer."

In fact, some pensions may even still be contractually obliged to offer the pension holder very generous annuity rates - rates that are unrecognisable today. On the other hand, some older-style pensions may well stipulate nasty exit fees. So it really can pay to take advice says Solomons.

How laziness could slash your pension by 12%

However the lack of clarity - and the potential for confusion - around charges could mean some inevitably get caught by large fees. Especially if you're considering taking your pension cash earlier than planned.

Bear in mind these charges may well apply not just to private pensions but also work pensions.

For the Chancellor though there's an added benefit to the changes: the Treasury gets their take on the pension pretty smartly, rather than waiting for the tax charges to dribble in gradually over many years.

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