Charges between drawdown providers vary considerably with some policies eating up thousands of pounds more over the lifetime of a fund.
Provider AJ Bell stated charges could appear low to consumers, typically ranging from 0.4 to 1.6 per cent, but over the long-term the difference can mean a loss to the pension of as much as £160,000 on more expensive policies.
The Financial Conduct Authority found in its retirement outcomes review last June that drawdown charges for the non-advised vary considerably and are, on average, higher than in accumulation, where in some cases they are capped at 0.75 per cent.
Tom Selby, senior analyst at investment firm AJ Bell, said: "High charges are a slow, lethal killer when it comes to making the most out of your pension in retirement.
"Savers should shop around the market to get the best deal possible, and stay on top of their retirement pot by reviewing it regularly (at least once a year).
"The good thing about drawdown is that you aren’t locked in, so if you want to switch investments or provider you are free to do so at any time."
Mr Selby said over the long-term the charges can have a big impact on retirement.
Total retirement income (1.6% charge)
Total retirement income (0.4% charge)
Total retirement income lost with high charge provider
Figures are based on 5 per cent annual investment before charges and 5 per cent annual withdrawals of the initial fund value, rising in line with 2 per cent inflation. Total retirement income lost assumes the investor lives long enough to exhaust their fund.
He said: "Take someone with a £100,000 pension pot at age 65 who starts withdrawing £5,000 a year from their fund and increases that each year in line with inflation.
"If we assume a 5 per cent investment return each year, a 0.4 per cent charge would see the fund run dry by age 92.
"Given life expectancy for a 65 year old woman is 88, that person could be quite confident that their pension withdrawals would last their whole life and they would have received a healthy £177,000 of income from their pot in total.
"However, if we increase the charge to 1.6 per cent and keep everything else the same, the fund runs out by age 88 which is cutting it fine in relation to life expectancy and the individual has received just £144,000 in income. So an additional £32,000 has been swallowed up in fees over the course of their retirement."
AJ Bell has advised individuals to shop around and be prepared to switch providers if they are able to get a lower drawdown charge elsewhere.
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