Pension Freedom on April 6 is only a month away now, and the major drawdown providers are starting to show their card in a bid to take their slice of the drawdown funds extravaganza.
Standard Life today announced they are removing their £208, one off set up charge and scrapping their £312 early depletion charge. A few weeks ago Hargreaves Lansdown removed their set up charge and offered drawdown for 0.45 per cent as an ongoing fund charge. Alliance trust is also withdrawing their £250 set up fee and choosing to charge an annual fee of £276 for all drawdown customers regardless of fund size.
The race is on to offer the most attractive drawdown proposition and secure the expected flood of funds in April. Since the March 2014 budget it’s widely been reported that people who once considered an annuity are now thinking about income drawdown as a means to take pension benefits. According to the ABI, sales of annuities have fallen by more than a third whilst the take up of income drawdown continues to gather pace. Standard Life expect a 5 fold increase in demand for drawdown.
Platform charges have been opaque for years with no real way of assessing the advantages of one over another. Some providers charge on a percentage of funds held. Others charge a one off fee per year and a number offer discounts on their funds based on assets held. It seems providers are now waking up to the need to simplify product charges in anticipation of a new wave of potential customers. Customers who want a simple way to compare one product against another. Annuities allowed this, they were quite black and white regarding who was best. The highest offer of income won. Drawdown providers need to appeal to those retirees who don’t have a maths degree and are not financially savvy. The recent announcements regarding simplification of fund charge from those companies mentioned is a step in the right direction.