Pensioners buying income drawdown from their existing pension provider could lose thousands of pounds in the process, according to Retirement Advantage.
The provider claimed up to £780m was lost in charges due to consumer inertia at point of retirement.
Retirement Advantage based its calculation on the average income drawdown pot of £88,600, as estimated by the Association of British Insurers and the figures published by the Financial Conduct Authority (FCA), which found 57 per cent of retirees stayed with their existing pension providers when buying drawdown rather than comparing the market.
The retirement specialist calculated that someone investing their £88,600 pot over 30 years into a product with charges of 1 per cent would lose £9,500 in that time compared with a product with a 0.5 per cent charge.
When multiplied by the estimated number of retirees this year with a private pension opting for drawdown with their current provider, the amount lost could be as much as £780m, Retirement Advantage calculated.
Andrew Tully, pensions technical director of Retirement Advantage, said: "The lack of shopping around that pervaded the annuities market now looms like a dark cloud over the drawdown market.
"Though pension drawdown is not a 'one and done' purchase like most annuities, the reality is that once bought very few people move contracts.
"As our research shows, they can end up paying higher charges than necessary and losing thousands of pounds over the course of their retirement."
FCA figures published in its Retirement Outcomes Review interim report in July last year showed the proportion of drawdown bought without advice has increased from 5 per cent before the introduction of pension freedoms to 30 per cent now.
The FCA raised concerns that customers may be losing out from the status quo, pointing out that "most consumers choose the path of least resistance" and accept the drawdown option offered by their pension provider without shopping around.
The watchdog found similar behaviour patterns with non-advised annuities.
Mr Tully said this suggested there may be limited competitive pressure to offer good deals.
He said customers may not only be missing out on the best deals, they may also not have the right investment and withdrawal strategies in place to manage the complexity of drawdown's longevity and investment risks.
In fact, the FCA said more than half (52 per cent) of fully withdrawn pots were not spent but moved into other savings or investments.
Mr Tully said: "The rise in the number of 'DIY drawdowners' means these people are choosing their own investment and withdrawal strategies and managing all of the complex risks of drawdown through retirement.
"The pension freedoms, although well meant, could actually be working against some people."
The regulator plans to investigate further whether consumers are getting good value if they choose drawdown without taking advice.
Dave Penny, managing director of Invest Southwest, said non-advised drawdown was a concern but the regulator should not overreact.
He said: "This is very much a concern for the general public. Not just that they will be potentially paying for funds which are more expensive than they need to be but almost more importantly that they are not risk managed and asset allocated in line with the clients' needs and attitudes.
"As well as culling the crooks, regulators and legislators need to be working to ensure people have access to advice on fees and risk management.
"Freedoms shouldn't be quashed, they should be encouraged and facilitated to happen successfully."
carmen.reichman@ft.com
