Recent research, carried out by Citizens Advice, has found that a worrying number of people are not exploring their options when deciding which pension provider to choose. In this blog, Acumen discusses the importance of shopping around for your pension.
The pension freedoms have given retirees far more choice when it comes to accessing their pension pots. Yet it seems a large number of people still aren’t making the most of their ability to choose and are sticking with their original provider. According to research carried out by Citizens Advice, 70% of people who accessed their pension following the freedoms didn’t shop around for alternative products or providers.
Why are people reluctant to leave their current providers?
Some of the main reasons for people staying with their existing providers include:
- They trusted the product (36%)
- The product met their needs (30%)
- Ease of access (29%)
- Their pension provider offers the best value for the product (24%)
- They wanted to avoid exit charges (15%)
However failing to research pension products could result in poor value. It may be that their current product did not meet their needs, compared to other providers who could perhaps offer a more suitable product. Staying with the original pension provider could be the best option in some cases however, it is important that every avenue is explored. Picking a pension is one of the biggest financial decisions you will ever make and ultimately secures your life after work. It’s very important to make sure that you seek advice to find the best product for you.
How does the product affect research?
Statistics show that the type of retirement income product people require affects the amount of research into the product. Those who are interested in annuities are more likely to seek alternative products compared to those who want cash. There is a huge difference between these two brackets – 57% of people who seek annuities do shop around compared to just 14% of those who want cash. Taking the middle ground, at 39%, are those who opt for income drawdown.
Income drawdown is becoming a popular option among retirees and it is also the most flexible. Therefore, there is a natural cause for concern when we find that those who are opting for this pension product are doing very little research into their options.
This can be quite a risky way of managing your money as the income received will vary on the performance of the underlying investment fund. There is no guaranteed income. This uncertainty makes it even more important to ensure those who choose income drawdown are receiving the right product from the right provider with the right investment strategy.
Research shows some people were concerned about exit charges but more important than this may be excessive provider charges that are enforced when they try to access their pension. Up to 160,000 people have been hit with fees when they have accessed their pension and those with smaller pots have actually been charged the most.
Those with a pension of £20,000 or less have been found to have paid £1,966 in fees, meaning nearly 10% of their retirement fund is being lost to provider charges. While this is set to change in the future, and be capped at 1%, it is still a real cause for concern until the modifications are put in place.
Where do I begin?
Researching pension providers can be a very daunting task. There are so many different products on the market that it can feel like a minefield. Our knowledgeable team here at Acumen can offer impartial advice tailored to suit your needs, we aim to make the world of pension products more understandable, make sure you don’t fall foul of excessive charges and guide you towards the right pension option for you.
To discuss your pension plan with one of our pension experts, please call us today on 0151 520 4353 or email [email protected]. For more information about retirement options, please visit www.acumenfinancial.co.uk.