Pensioners may be sleepwalking into paying excessive fees when they could save tens of thousands of pounds by switching their drawdown provider.
Intricate and confusing charging structures make it difficult for savers to work out how much they have paid in fees or to compare costs between companies, leaving many unclear on how they could cut costs.
A report by Which?, the consumer group, found that investing £250,000 through the most expensive drawdown option, Aegon Retirement Choices, would cost more than £47,000 in charges over 20 years. Customers would pay £12,300 more than with the cheapest alternative.
Jenny Ross of Which? said: “The industry is still making it extremely difficult for savers to find and compare pension drawdown charges, which over time can make a startling difference to the size of your retirement pot.”
She called for the regulator to introduce a cap on pension drawdown charges and require providers to be more transparent.
James Jones-Tinsley of Barnett Waddingham, a consultancy, said there needed to be a drawdown comparator to help savers compare costs.
He said: “Too many providers outline their charges in percentage terms, which may look low on paper but could amount to thousands of pounds in reality.”
City watchdog the Financial Conduct Authority conceded in its Retirement Outcomes Review that more needed to be done, as drawdown charges remained complex and opaque.
It said consumers might pay too much in charges and were likely to stick with their provider, given low switching levels. It said one remedy would be if providers told customers how much they had paid in charges in pounds and pence.
The FCA said it was working with the Money & Pensions Service and the Association of British Insurers to develop a drawdown comparator tool.