Many people will be using their workplace and private pension arrangements to plan towards retirement. The average UK pension pot is found to stand at £37,600 for savers aged between 55 and retirement.
However, experts have expressed concern some individuals could be purchasing unnecessary advised retirement income products.
These are often complete with higher annual charges and transfer fees.
As a result, they could be damaging their pension pots, and the retirement they hoped for, according to HSBC Tomorrow Master Trust.
As an example, the report found a ‘Baby Boomer’ with a pension pot £35,000, who wants to withdraw four percent as an annual drawdown income, would receive £779 in their first year of retirement.
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For instance, the same Baby Boomer would receive a £779 drawdown income in their first year of retirement.
But they would not need to pay a transition fee, and would only face £87 in annual management charges, HSBC added.
Alison Hatcher, CEO of HSBC Tomorrow Master Trust, said: “The risk at the point of retirement is now one of the biggest detrimental factors for scheme members looking to convert their pension pot into a flexible income.
“There is a clear and growing need for in-scheme drawdown offers to provide greater protection and value for members.”
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While Kathryn Fleming, partner at Hymans Robertson, added: “The impact of charges and fees on pension funds is overlooked but has a major effect on people’s retirement and how long their funds last.
“Providing in-house drawdown options will save scheme members money better used for their retirement.”
Each roadway into retirement may have a significant impact on the risk of pot exhaustion, HSBC explained.
The report found the same Baby Boomer who buys an actively-managed drawdown plan from a third-party provider has a one in six chance of running out of money by the time they reach age 90.
This is compared to a one in 25 chance if the saver is able to convert their pension pot into a drawdown income in-scheme.
Above all else, people are strongly encouraged to take independent financial advice when it comes to decisions about their pension.
These experts can often provide tailored assistance to suit a person’s specific needs.
