Poor pension choices could mean years longer at work

High pension charges and taking a low rate annuity can eat away at a saver's potential pension pot by nearly 25%, research reveals

Savers who pay higher pension charges and do not get the best annuity deal could be working well into their early 70s, a report for the National Association of Pension Funds (NAPF) by the Pensions Policy Institute (PPI) shows.
 
The report looked at how decisions made by savers could affect the pension of an average earner due to retire in 2055 at the age of 68.

Key factors included paying more into a pension, starting saving earlier, and working longer. Charges and annuities were also looked at.

Charges for stakeholder pensions are capped by law at 1.5% for the first ten years, then 1% thereafter however if an employer negotiates a pension with the long-term 0.3% rate offered by some major providers, a saver could bolster their income in retirement by 17%, the report explained.

People who stick with the higher charges would need to work three years longer to get the same pension as those who benefited from a pension with charges of 0.3%.

The report also showed that converting a pension pot into an income using the lowest rate quoted on open market tables rather than the ‘best buy' could reduce pension income by 12%. To make up for this loss people would have to retire two years later than if they had picked the best rate.

NAPF chief executive Joanne Segars said, "People who don't get the best out of their pension could end up stuck at work for years longer than they planned. Getting a good deal on charges and annuities can mean the difference between enjoying retirement and spending years more at the desk."