Budget changes that are set to increase the prominence of drawdown have thrown a light on the disparity in ‘hidden’ charges between platform and self-invested pension providers, which a new study has shown could stretch into several thousand pounds for clients with the largest pots.
A study by The Lang Cat, conducted on behalf of FundsNetwork, has revealed a range of one-off and annual fees that some providers charge but others do not, and that can mean clients pay up to more than £4,000.
The research highlighted disparity in one-off event charges, such as set up fees which range from zero to £240, additional crystallisation charges that could go up to £100, and withdrawal charges that could be as high as £60.
In terms of annual fees on top of any platform charges already being levied, some providers again did not ask for extra while the most expensive for capped and flexible drawdown saw clients pay £180 or £270 a year.
The Lang Cat used a case study of a client with a 20-year retirement that crystallised their Sipp and transferred in funds from another pension - potentially triggering additional transfer in costs - at outset, who took their full 25 per cent tax-free pension commencement lump sum and later made a second one-off withdrawl.
Total fees started at as little as £125 on top of existing platform costs for a client with a £50,000 fund, with the highest charges at this level being £779. At the other end of the spectrum a client with a £1m pot could be charged £4,175, substantially above the lowest fees at this level of £825.
Advisers would need to assess all of the requirements of a client entering drawdown to see which fees might be triggered and add this to the platform charges to see which was in fact the best value for clients.
While a platform with a low headline rate might still be best for simple clients at the lower end of the spectrum, in many cases these fees, which might not be well understood at outset, could push costs much higher than expected.
An FTAdviser investigation in March reported on similar complaints over Sipp fee disparity in relation to transfer out charges, ranging from zero to £250 per asset for standard assets and up to £800 for commercial property.
Platforms too have come under pressure over the range of ‘hidden’ fees such as cash management fees, exit fees and even retained interest on cash accounts, which FTAdviser exposed in a previous investigation.
Jon Everill, head of advisory services at FundsNetwork, said: “It is staggering to see how widely the different charges range from provider to provider. On the face of it, one client could be paying upwards of £4,000 while another pays less than £1,000 for exactly the same thing.
“The changes announced in the Budget will revolutionise the retirement market and create an even greater opportunity for advisers, whose clients will need more help and advice in navigating the ‘retirement maze’.”
Mark Polson, Principal of the lang cat, said: “The lines between the bit of your life where you save for your pension and when you start taking it back out have been blurring for a long time, and the Budget will only blur them further. Yet the pensions industry too often treats the two stages as completely distinct and a chance for a brand-new product sale.
“The more providers recognise that reality is far more nuanced than this the better – and while charges aren’t everything, they’re not a bad place to start.”
