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Pension freedoms: people aren’t shopping around for best value products

Paloma Kubiak
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Paloma Kubiak

Those who have already accessed their pension since the new freedoms were introduced have not shopped around meaning they could end up with poor value products.

Some seven in 10 people who have accessed their pension since new freedoms were introduced last April didn’t look at other options, new research from Citizens Advice reveals.

In a report out today, the charity found that a quarter of consumers (24%) who stayed with their pension provider did so because they thought the product they were offered delivered the best value.

Citizens Advice now warns that if consumers don’t look at a range of different pension products they may end up with a poor value product that doesn’t meet their needs.

Here are the reasons why people are choosing to stay with their existing provider:

  • Over a third (36%) said they trusted their existing pension provider
  • One in three (30%) had a product which met their needs
  • Three in 10 (29%) said they stayed because it was the easiest way to access their savings
  • More than one in seven people (15%) wanted to avoid exit charges.

But its research also revealed that consumers who buy annuities are more likely to shop around with over half (57%) checking products with other providers.

In comparison, only two in five (39%) who bought a drawdown product compared elsewhere, while the number for those taking cash was just 14%.

Citizens Advice is calling on the government to create a tool for consumers to compare pension drawdown products in the one place, similar to the one which exists for annuities.

Concerns around excessive fees

The charity also found that many are worried they’ll be hit with excessive fees if they move away from their current provider.

Its analysis reveals that up to 160,000 people have paid fees when accessing their pension since the freedoms were introduced.

Those with smaller pots are hit the hardest, with those with £20,000 or less in retirement savings have paid an average of £1,966.

For some consumers this can mean they have lost 10% of their retirement savings to charges levied by providers.

While the FCA has recently proposed to cap exit fees for current pension schemes at 1% of a person’s pot value, Citizens Advice said this cap is too high and is calling for a standard £50 charge to cover provider’s administration costs.

Gillian Guy, chief executive of Citizens Advice, said: “Picking a pension product is one of the biggest financial decisions people will ever make, so it’s worrying that so many aren’t shopping around.

“More and more consumers are choosing drawdown products but our research shows they aren’t checking whether they’re getting the best deal. The government and industry needs to work together to make it easier for consumers to compare drawdown products and choose the one which best meets their needs.”