Pension freedom users lose up to 10% of retirement pot

Pension freedom users lose up to 10% of retirement pot

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According to Citizens Advice, some pension freedom users have lost up to 10% of their retirement pot through providers’ charges. In this blog, Acumen explains the pension freedoms, discusses the impact these charges could have on users and why it is so important to shop around when investing in your pension.

What are the pension freedoms?

The pension freedoms were introduced in 2015, following the April 2014 budget plan. The principal of the scheme is to allow anyone over the age of 55 to access their pension as a lump sum, without paying tax on the first 25%. The rest of the money is taxed at the salary of the individual’s income tax rate.

The proposal marked one of the most radical changes to pension funds in the last hundred years. The pension freedoms are aimed predominately at those who have a private pension, as they are more likely to have a pot of money that they wish to access.

Hidden charges of pension freedoms

While on the surface the scheme seems revolutionary, compared to preceding methods of accessing a pension, the new process is by no means perfect, as users have found over the last 12 months. Since the freedoms were launched in 2015, it is estimated that 160,000 people have paid to access their pension, with two fifths of people admitting to paying at least one type of charge.

In some cases individuals have lost 10% of their pension, just through accessing it.

This is not the only issue with the freedoms scheme. Citizens Advice have reported long waits when retrieving pensions. While the majority of individuals have had access to their pension within the month, some reported long waiting times. One in six retirees had to wait up to two months before they could retrieve their pension, which ultimately impacts plans and lifestyle.

Why it’s important to shop around

The general public are wary of what they see as excessive charges. A different provider may offer more suitable products and services and better value over time but the threat of exit charges means that many consumers stick with their original private pension and that’s not always the right thing to do.

Choosing a pension is one of the most important decisions you can make and therefore cannot be taken lightly. Acumen offers comprehensive, impartial guidance to those who need it, assisting you in making the right decision for you. Our experts can help you to find the most suitable pension by talking through all the options available to you.

Not such a pension panacea perhaps

For those who have a private pension and want access to a large sum of their money, then in theory, yes. Of course, excessive provider charges and sometimes long waits are significant disadvantages to the scheme and should be considered when deciding a pension.

On the other hand, some people still prefer the concept of an annuity and this can be viewed as the more secure option. By having a set amount of money each year, you are safe in the knowledge you will have enough money to last your lifetime.

However, there are still downfalls with annuities, as rates have dropped in recent years. Those who stick with the same provider may get a much worse deal too. There are advantages and disadvantages to annuities and flexi-access drawdown as the new arrangements are called but did you know that you can have a mix of the two? The only way to discover the best arrangement for you, is through seeking professional advice and guidance from trusted financial advisers like Acumen.

To discuss your retirement plans and how best to invest in your future call Acumen on 0151 520 4353 or email

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