Capping Pension Drawdown Fees

Capping Flexible Pension Drawdown Fees.

The House of Lords has had a heated debate concerning why flexible pension drawdown product charges are so high. Labour peers have suggested that charges are ‘ridiculously' high and that the British investing public are being ripped off on a 'daily' basis and are demanding a government review in light of so many people now taking advantage of the new flexible pension drawdown rules.

The government has responded that it has no plans to introduce a charges cap.

We suggest that the market is big enough for competition to take over and given the complexity and high administration cost of running a pension scheme where the public can not only withdraw funds whenever they want and as much as they want and expect the pension company to even make complex week one month one tax deductions and act as a glorified tax collector, charges will remain at a higher level until the reporting and taxation systems are simplified.

In addition, the financial risks of people running out of money also high yet the financial ombudsman service would rule against a financial adviser if they did not explain all of the risks to the consumer as well as pension companies in most cases insisting that a financial adviser signs a declaration to confirm that they have given advice when a client wants flexible drawdown, means that the cost of initial financial advice will also remain high given that the financial adviser has an open ended liability.

In our view, it is right that Labour peers are raising concerns but until complexity is removed for pension companies and liability is reduced for financial advisers, the costs to access flexible pension drawdown will remain high.