(Bloomberg) -- Consumers who access their pension pots early are being hit by hefty charges and could potentially boost their annual income by more than 10 percent by switching providers, according to the head of the U.K.'s financial watchdog.
Just over a third of savers stuck with their own pension providers once they'd consulted a professional and shopped around, compared with 94 percent of those who failed to take advice, Andrew Bailey, the chief executive officer of the Financial Conduct Authority, said in a speech in Gleneagles, Scotland.
“We also found weak competitive pressures and low levels of switching in the non-advised drawdown market, and looked at whether this might drive higher prices and less innovation,” Bailey said in the comments published on Monday. “Given this lack of competitive pressure, we are concerned that consumers might pay too much in charges.”
The U.K. changed the rules on pensions in 2015 to allow consumers to access their savings from the age of 55, and gave them greater decision-making power. The reforms have generated concerns about predatory behavior on the part of providers and fears that poor decisions could lead consumers to blow their potential income on luxuries such as sports cars.
The issue of consumers' decision-making is the “dog that has so far not barked,” though the matter may deserve greater attention as pensions pots increase in size, Bailey said in the text of the speech delivered on Saturday.
The charges when pensions are drawn down “can be complex, opaque and hard to compare,” Bailey said. “This makes it difficult for consumers to compare and shop around for the best products for their needs, and this limits competitive pressures on providers.”
To contact the reporter on this story: John Glover in London at johnglover@bloomberg.net
To contact the editors responsible for this story: Sree Vidya Bhaktavatsalam at sbhaktavatsa@bloomberg.net, Jon Menon, Paul Armstrong
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