The pension freedoms may have given people more choice when it comes to accessing their pension, but it seems that many aren't fully exercising their right to choose, with research from Citizens Advice finding that a worrying number of people aren't shopping around when making their decision.
The figures show that seven in 10 people who have accessed their pension since the freedoms were introduced didn't shop around for different products, while 24% of consumers who stayed with their pension provider did so because they thought the offered product delivered the best value – despite not looking at other options.
Other reasons for consumers choosing to stay with their existing provider include the fact that they trust the company (36%), that the product met their needs (30%), that it was the easiest way to access their savings (29%) and that they wanted to avoid exit charges (15%), but ultimately, failing to shop around – for whatever reason – could mean that they end up with a poor value product that doesn't meet their needs.
Gillian Guy, chief executive of Citizens Advice, said it was "worrying that so many aren't shopping around", particularly given that "picking a pension product is one of the biggest financial decisions people will ever make". However, it seems that some consumers are more willing to shop around than others, with lots of it coming down to the type of retirement income product they're looking for.
Those who buy annuities are more likely to shop around, with 57% checking products with other providers, but this drops to just 39% of those who opt for income drawdown and just 14% for those taking cash.
Given that income drawdown is becoming a more viable option for many retirees, it's worrying to see so few shopping around to check whether they're getting the best deal. As a result, Citizens Advice is calling on the Government to create a tool that will allow consumers to compare drawdown products in one place, much like the tool for annuities, which could "make it easier for consumers to compare drawdown products and choose the one that best meets their needs", said Gillian.
Another point of contention is the additional fees that can be charged. Many consumers are worried that they'll be hit with excessive exit charges if they shop around and change provider, and unfortunately, it seems that they may have cause for concern: the analysis revealed that up to 160,000 people have paid fees when accessing their pension since the freedoms were introduced, and it's those with smaller pots who have been hit the hardest.
Indeed, those with a pension of £20,000 or less are paying an average of £1,966 in fees, so some consumers can lose 10% of their retirement savings simply to charges levied by providers. It'll come as welcome news, then, that the Financial Conduct Authority (FCA) is proposing to cap exit fees at 1% of the pot's value, but Citizens Advice believes that even this is too high and is instead calling for a standard £50 charge to cover providers' administration costs.
This would allow consumers to make the most of the pension freedoms without being put off by the threat of excessive charges, said Gillian, which will hopefully make it more likely that people will shop around and ultimately choose the right product for their circumstances.
Of course, it'll take time for any of these measures to come into place, but that doesn't mean you can't shop around in the meantime. In fact, it's vital that you do – after all, the decision you make could determine the amount of income you receive for the rest of your life, so doesn't it make sense to choose wisely?
Start the process by finding out more about the pension freedoms and the new options open to you, and head to Pension Wise for impartial guidance or an independent financial adviser for tailored advice. Make sure to speak with several providers to get suitable quotes, and if you're seeking an annuity, check out our no obligation annuity planner, which could help you compare the options to secure the retirement income you need.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
Moneyfacts.co.uk will, like most other websites, place cookies onto your computer’s
hard drive. This includes tracking cookies.