Labour is calling for tough new cost limits to safeguard savers from being ripped off from April next year when new pension independence will empower the over- do whatever they like together with the cash and 55s for the very first time to take their pension pots.
Shadow pensions minister Gregg McClymont needs stringent price controls in the new wave of ‘drawdown’ products now being created by the financial services sector. Drawdown is being extensively promoted as a replacement for annuities, enabling pension savers to leave their cash invested in a mixture of equities, bonds and shares, then take a slow income from the money during retirement.
The government has already introduced a limit on fees of 0.75% a year on workplace pension schemes from April 2015 but left drawdown plans out of the regime. Labour needs a cover on drawdown products of no more than 0.75% but maybe 0.5% to shield the hoped-for 320,000 individuals expected to use some kind of drawdown from next year.
McClymont said: “Labour welcomed the brand new pension flexibilities declared in the budget, but we’re concerned the government hasn’t thought through the dangers of rip off charges being taken from the economies of hardworking individuals.”
Income of annuities have halved next April, ahead of the brand new pensions independence, but the options available are the topic of controversy. Nest, the pension supplier set up by the authorities to manage “vehicle enrolment” workplace pension schemes now establishes a consultation calling for the business to make drawdown products which match the challenges of low and moderate earners. “There are no acceptable alternatives for a large proportion of savers on average gains,” it said.
Research by Nest found that savers are seeking protection from inflation during retirement, a guaranteed income until death while desiring to prevent stock market volatility. Nest chief investment officer Mark Fawcett said that the organisation is investigating, although guarantees will likely be overly pricey for most savers insurance-established notions common in the US to help shield pensioners from the danger and from market volatility that their cash will run out.
“The options we as an industry grow during the next couple of years could discover the lives of huge numbers of men and women in old age. We certainly cannot afford to neglect consumers who’ll increasingly need to make selections that can have fundamental impacts on their lifestyles in retirement. Leaving their retirements to opportunity isn’t an alternative,” said Fawcett.