It has been revealed by The Telegraph that “savers who take advantage of new flexible pensions next year face losing more than a quarter of their money to charges”. There has been a lot of coverage of new pension freedoms in the press since they were announced in the March Budget. The Government are encouraging people to use their retirement funds as they wish without having to buy an annuity, in an attempt to remove many of the charges that often applied. An academic at Cass Business School, Professor David Blake, has now revealed that drawing a pension early could be poorer value than buying an annuity, with the possibility of “large sums (being) removed from…funds.”
All over-55s will be entitled to free, impartial pension advice from April 2015, but research conducted by The Telegraph has found that many pension companies “would typically charge more than £300 to set up this type of plan”. Some could be slapped with £400 administration fees, and some will face charges for ‘unplanned withdrawals’. Those with smaller pensions (of £10,000 or less) may find the scheme puts them at more of a financial disadvantage, rather than give them more freedom with their savings.
There’s further comment in the Financial Times today, as the Government has demanded the pensions industry address the way it charges customers. According to the report, there are “between £23.2bn and £25.8bn of assets” that could be subject to charges of more than 1%, and those “with pension pots of less than £10,000 (are) most at risk, with charges as high as 3%”. Pensions Minister Steve Webb has previously commented on pension reforms and the unfairness of the industry when it comes to older savers. Now, he’s calling for “big, bold answers” from pension providers, and wants to get rid of exit fees in particular.
Greater pension freedoms have meant that many Brits approaching retirement are considering their financial options and the potential for investment in more detail, and are exploring options that were not previously possible. Funds can be invested in peer-to-peer lending for periods of 12 months to 5 years, with interest paid either monthly or on maturity.