Labour is planning to cap charges on income drawdown and other retirement income products because it is concerned retirees could fall prey to excessive fees.
Labour leader Ed Miliband will unveil plans for a drawdown charge cap in a speech to be delivered today. Labour first floated the plan in November.
The plan is unveiled on the same day that Which? has published a report that is heavily critical of the income drawdown market, highlighting big variations in pricing models and complexity in charging structures. Which? says the difference between providers charging 2.75 per cent a year and 0.5 per cent a year would amount to a £10,300 loss of income for someone with a £36,000 pot.
Milliband will say: “We will act to protect savings by capping rip-off fees and charges on new pension products. People who draw money out of their hard-earned pension pot should have similar protections to when they put money in.”
Hargreaves Lansdown says a charge cap will be difficult to design because drawdown is not a one-size-fits-all solution. It adds that passive income options are limited, meaning charges tend to be higher, and it cautions against a system that encourages providers to offer a no-frills offering when guidance is so limited.
Hargreaves Lansdown head of pensions research Tom McPhail says: “Consumers benefit from lower charges, but they also benefit from well-designed products, and timely help and guidance along the way. A charge cap threatens to strangle this new pensions market before it is even born, by stifling the investment and innovation it badly needs to deliver good outcomes for savers.