Labour warns over charges following pension reforms

Coins and notes Image copyright PA

Labour is urging the government to ensure people taking advantage of new pension freedoms next April are not ripped off by financial firms.

Many over-55s will be able to dip into their pensions pots when they wish to.

But the party says a charges cap may be required to prevent investors in certain schemes losing more than a quarter of their money in fees.

The Treasury says savers will be given impartial guidance and new rules for financial firms are being introduced.

Up until now most people in defined contribution schemes - where the final pension depends on the amount of investment returns - bought an annuity, a pre-set income for life, from a provider when they retired.

From next April, savers will be able to use their pension money as they see fit, from the age of 55.

More than 300,000 people will be able to access their pensions. A quarter of the money withdrawn will be tax-free, with income tax payable on additional withdrawals.

Labours says it is concerned that insurers, investment managers and advisers will see the change as an opportunity to cash in.

'Not thought through'

In particular, it is highlighting the potential high fees for pensioners who use so-called income drawdown schemes to access their cash, a practice up until till now used mostly by wealthier retirees.

The schemes allow savers to take part of their pension while keeping the rest invested in the stock market.

Labour says the fees for such schemes could reach 27% of the value of a £30,000 pension pot, if existing charging structures on drawdown products were applied.

Pensions minister Steve Webb said the Financial Conduct Authority would soon be publishing new guidelines for companies selling pension-related financial products.

But Labour says the government has not included income drawdown investments in its plans to combat high fees.

Shadow pensions minister Gregg McClymont said: "Labour welcomed the new pension flexibilities announced in the Budget, but we are concerned that the government has not thought through the risks of rip-off charges."

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