The investment platform pointed to analysis produced by the financial regulator, the Financial Conduct Authority, which shows that total charges in pension drawdown can range from 0.4% to 1.6%.

Pension drawdown enables retirees to draw a variable income directly from their pension fund, which remains invested through retirement. This provides flexibility and the prospect of growing income, as the value of your investments increases over time.

However, when investors pay out high charges for the underlying funds the benefits of this potential growth in capital and income is eroded.

According to AJ Bell’s calculations, the difference between paying 0.4% and 1.6% equates to £32,000 in retirement income over time for an individual with a £100,000 pension pot. AJ Bell factored in withdrawals of £5,000 per year from the age of 65, increasing in line with inflation. The investment platform’s calculation also assumed a 5% investment return each year.

If a 0.4% underlying fund charge is factored in, the individual’s pot would run dry by the age of 92. Over this period, they would have received a healthy £177,000 of income from their pot, the investment platform estimates.

When the 1.6% charge is factored in, the same pension pot would run out when the individual reaches 88 and they would have received only £144,000 in income over this period. This means that £32,000 would have been eaten up by fees over the course of their retirement.

“Charges are not the be-all-and-end-all, but it is an indisputable fact that by keeping costs as low as possible, savers can squeeze thousands of pounds more out of their hard-earned pensions,” explained Tom Selby, senior analyst at AJ Bell.

The table below outlines the impact that charges can have on different sized pension pots:

Notes: Figures based on 5% annual investment returns before charges and 5% annual withdrawals of the initial fund value, rising in line with 2% inflation. Total retirement income lost assumes investor lives long enough to exhaust their fund.

Source: AJ Bell

Make the most of your pension pot

For those who wish to get the most out of their pension pot, here are AJ Bell’s top tips:

1. Shop around – for both for the right product (usually annuity, drawdown or a mix) and the right provider.
2. Keep an eye on costs and charges – be ready to switch if you can get a better deal elsewhere.
3. Avoid overtrading – as this could push up your costs.
4. Review everything regularly – for example your provider; how much you’re withdrawing; and your investment choices.
5. Don’t stick your head in the sand – Almost a third of people who have entered drawdown since April 2015 who were surveyed by AJ Bell were unaware of what had happened to their funds since they invested. If markets take a dip you may need to look again at how much you’re withdrawing, otherwise your money could run out early.