Outrage: Retired judge David Page was forced to pay £2,000 in financial advice fees to access his £70,000 pension pot
When retired judge David Page hung up his robes earlier this year, he knew what he wanted to do with his pension savings.
The lawyer had earned a generous salary-linked judicial pension and had another — albeit much smaller — private pot with the Prudential.
David, 71, planned to dip into the pot of around £70,000 over the course of a year so he could gradually clear his mortgage without paying any more income tax.
But when he retired in May, David found that the Prudential had taken more than £2,000 in financial advice fees from his savings.
This is because the Pru insists savers take regulated advice at a cost of 2.84 per cent of their pension before they can draw down. Retirees are also forced to pay a 0.6 per cent ongoing-advice fee every year after.
But David, who had a short meeting with an adviser from the Pru, says he was unaware he could simply have moved his money to another provider to access it without having to pay for advice.
Experts fear not enough people shop around for a better deal when they hit retirement, and instead stick with the provider they saved with.
This means they can end up paying for advice they do not need or losing valuable income to fees.
David, who was a court judge for 20 years and lives in South Wales, says: ‘You shouldn’t have to pay to access your own savings. It is just exploitative, it really is. I wonder how many people have been told they have to — that’s what really worries me.’
Drawdown accounts allow savers to keep their pension invested so it can grow while they withdraw a regular income.
Around one in four pension pots moved to drawdown accounts is accessed without regulated advice, according to watchdog the Financial Conduct Authority (FCA).
The regulator found advisers charge 2.4 per cent on average for initial advice — wiping £2,400 off of £100,000 — and 0.8 per cent every year after that for ongoing advice.
Forced to pay adviser I’ve never heard from
No contact: Retired hairdresser Eric Sheppard
For nearly 20 years, retired hairdresser Eric Sheppard paid an adviser he never heard from to do nothing.
Eric, 75, consulted an adviser in 2002 before putting his £100,000 pension savings into a drawdown account with Legal and General.
But it was only last year, after the pension was transferred to ReAssure, that Eric received a statement explaining he had been paying a financial adviser commission of around 1.5 per cent.
Eric, who lives near Bicester in Oxfordshire, says: ‘I didn’t realise I would have to pay commission year after year until I died.’
Eric, who has now cashed in the pension which was paying £135 a month, adds: ‘Over the past 19 years I have never been contacted by my ‘financial adviser’ to see if I needed any advice, and I could not contact them as I was not aware of them.’
A ReAssure spokesman says: ‘We no longer deduct commission where we’ve been asked to cancel it.’
Legal and General says: ‘The commission payment was agreed at the start of the contract and disclosed when the policy was sold.’
Advisers have been charging for advice since they were banned from pocketing commission in 2012.
Yet savers can receive guidance free of charge from government service Pension Wise. Some retirees also may not want or need advice.
A Prudential spokesman says David was told he would be charged for advice, and says: ‘To protect our customers and make sure they get the best outcome, we require that [those switching] into drawdown are advised by a regulated financial adviser.’
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Complaints about pension charges, fees and commission have soared, according to the Financial Ombudsman Service. In the year after the pension freedoms were introduced in April 2015, the service received 189 complaints. This rose to 351 in the last year — up 86 per cent.
Figures from the FCA show that advisers charge as much as 3 per cent for initial advice and as little as 1 per cent. Annual ongoing advice fees can be as high as 1 per cent and as low as 0.5 per cent.
A retiree with a pot of £100,000 who puts their pension into drawdown and takes out 4 per cent every year, rising every year by 2 per cent to keep up with inflation, could expect to make their savings last for 28 years.
This is assuming an average of 4 per cent investment returns, and including an annual 1 per cent fund charge.
Sky high fees: Figures from the FCA show that advisers charge as much as 3 per cent for initial advice and as little as 1 per cent. Annual ongoing advice fees can be as high as 1 per cent
Yet if that pensioner paid the higher-end initial advice fee of 3 per cent and the top ongoing advice fee of 1 per cent, their savings would run out after 24 years — a difference of around £26,000.
And if they paid the lower 1 per cent advice charge and a 0.5 per cent ongoing fee, the money would last 26 years — meaning their pot would be worth around £13,000 less than if they did not pay for advice.
Tom Selby, head of retirement policy at investment service AJ Bell, says good advice can save someone money in the long run if they are stopped from making a big mistake or unnecessarily paying more tax.
‘Nonetheless, it is crucial you consider value for money when choosing an adviser, a platform and your investments,’ he adds. ‘Overpaying for any of these, even by a seemingly small amount, can wipe thousands of pounds off your retirement pot.’
Steve Webb, partner at pension consultancy Lane Clark & Peacock, urged savers to shop around for the right deal.
He says: ‘There’s a real risk that inertia means people don’t check if there are better options on offer. People wrongly think that if they’ve saved with the Pru, they have to take their pension with the Pru.’
Carolyn Jones, head of pensions policy and strategy at the Money and Pensions Service, says: ‘When using a financial adviser, make sure you look at the information provided to understand what you will be charged.
‘You should bear in mind that some pension providers offer their products only if you take financial advice. If this is not what you want, you can still shop around and move your money to a provider you have chosen.’
Matthew Connell, of financial adviser body the Personal Finance Society, adds: ‘The value of financial advice is helping clients realise how events may have impacted their retirement plans, identify that some things are possible that they thought weren’t possible and break decisions down into manageable financial goals.’