You could be sleepwalking into a retirement disaster, especially if you don’t take advice about what to do with your pension pot.
The warning comes as the retirement industry holds its annual Pension Awareness Day this week, sending experts on a roadshow round the country to spread the word.
Saving for your future is essential, but can be undone if you make the wrong decision when you choose what to do with your pension pot.
The Financial Conduct Authority reckons that a flexible retirement option chosen by an increasing number of people — known as income drawdown — is a minefield.
For starters nine out of 10 people simply take the deal offered by their existing pension company — which can often be an expensive mistake.
That’s because it’s easy to be hit by charges. And with fees ranging from 0.4% to 1.6%, the City watchdog predicts consumers could increase their annual income from a drawdown scheme by 13% by choosing a lower-charging firm.
How much worse off could you be? Anyone with a £50,000 pension pot could miss out on retirement income of £14,000, according to number crunchers at pension firm A J Bell.
That’s enough to buy yourself a brand new Ford Fiesta hatchback or splash out on a luxury holiday.
“High charges are a slow, lethal killer when it comes to making the most out of your pension in retirement,” says Tom Selby, senior analyst at AJ Bell.
He advises savers to shop around to get the best deal, and stay on top of their retirement pot by reviewing it regularly, at least once a year.
Almost a third of people who entered drawdown since the pension freedoms in April 2015 had no idea what had happened to their fund since.
“If markets fall you may need to look again at how much you’re withdrawing or risk running out of money early,” Selby says.
Drawdown is popular because it gives people a lot of flexibility with their pension savings. It allows you to take out cash as you need it while leaving the rest to continue growing.