09 February 2012
High pension charges and the wrong choice of annuity could cut a
saver's potential pension income by a quarter (24%), meaning they
would have to spend years longer at work to cover the loss,
pensions experts have warned.
The Pensions Advisory Service welcomes a report for the National
Association of Pension Funds (NAPF) by the Pensions Policy
Institute (PPI) which revealed that savers who did not get the best
deal from these two factors could end up working into their early
70s.
The report looked at how decisions made by savers could affect
the pension of an average earner due to retire in 2055 at the age
of 68. Factors included paying more into a pension, starting saving
earlier, and working longer. Charges and annuities were also
explored and are important as they do not involve the saver having
to pay any more into their pension.
Charges for stakeholder pensions, which are a common type of
workplace pension, are capped by law at 1.5% for the first ten
years, then 1% thereafter. But by an employer negotiating a pension
with the long-term 0.3% rate offered by some major providers, a
saver could increase their income in retirement by 17%.
People who stuck with the higher charges would need to work
three years longer to get the same pension as those who benefited
from a pension with charges of 0.3%.
The report also showed that converting a pension pot into an
income using the lowest rate quoted on open market tables rather
than the 'best buy' could reduce pension income by 12%. To make up
for this loss people would have to retire two years later than if
they had picked the best rate. Unfortunately, around a third of
people fail to 'shop around' for the best annuity.
Read More
Read more about pension charges here.
