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Money & Rights

Money and Rights News: July

Why drawdown schemes can cost you dear

Retirees opting for increasingly popular 'drawdown schemes' for their pension savings could potentially lose tens of thousands of pounds over the course of their retirement, according to analysis by the Financial Conduct Authroity (FCA).

Drawdown schemes allow retired people to withdraw money from their pension funds, while leaving the rest invested so that the fund can continue to grow. However, the regulator has warned that expensive fees charges by companies that offer such schemes eat into investment returns.

The fees charged range widely, from 0.4 percent to 1.6 percent, says the FCA. Paying the highest charge versus the lowest charge could result in an investor with a £100,000 pension missing out on £32,000 in retirement income and potentially running out of money. 

Tom Selby, senior analyst at AJ Bell, says: "It is over the long-term that charges can have a really big impact on your retirement. Let;s take the two extremes cited by the FCA and someone with a £100,000 pension pot at age 65 who starts withdrawing £5000 a year and increases that each year in line with inflation. 

"Assuming a five percent annual investment return, a 0.4 percent charge would see the fund run dry by age 92. Given life expectancy for a 65 year old woman is 88, that person could be quite confident that their pension would last their whole life and they would have received a healthy £177,000 of income from their pot. 

"However, increase the charge to 1.6 percent, the fund runs out by age 88 and the individual has received just £144,000 in income."

The bigger the pot the more extreme the difference. With £250,000 and fees of 0.4 percent you would receive £441,804 in income- but this drops to £360,562 for those paying the highest charges.

Mr Bell says: "High charges are a slow, lethal killer when it comes to making the most out of your pension in retirement. Savers should shop around the market to get the best deal possible, and stay on top of their retirement pot by reviewing it regularly (at least once a year).

"The good thing about drawdown is that you aren't locked in, so if you want to switch investments or provider you are free to do so at any time."

Beware of 'fake' ISAs

Savers are being targeted by a plague of clones ISAs that look identical to offers form the industry's leading names, an investigation by The Times has discovered. The newspaper found hundreds of rogue products masquerading as the real thing, with official looking paperwork, website addresses and authorisation details.

For example, in what appeared to be a genuine product form Axa investment managers, a cash ISA paying three percent per annum was being offered (almost double the top rate available from genuine companies). A document headed with the Axa logo outlined the terms, including early withdrawal penalties and when interest would be paid. It included a web address, which redirected customers to the genuine Axa website. These details would be enough to fool many savers, yet Axa offers no such deal, and had no knowledge of the clone product until contacted by The Times.

It is not clear what would have happened if people had been fooled by this offer, but experts say your cash would probably disappear. These bogus firms are not regulated so any money lost will not be covered under the Financial Services Compensation Scheme (FSCS)

Worryingly, the FCA does not have the power to remove the websites of companies offering bogus savings accounts. It has asked the Government for additional powers to tackle rogue firms and says it is working closely with tech firms and internet service providers to try to bloc them promptly. It adds there is little it can do to prevent scam firms appearing in Google search results, or to take down bogus websites. Many operate from outside Britain, and some vanish after a week, only to be replaced by another from the same scammers.

The FCA list of cloned and unauthorised firms can be found here. It also has advice on how to spot a scam here

Record number of over-50s in work 

Official employment figures in May showed there are more people aged 50-and-over in work than ever before- 10.45 million. Since the same time last year, the total number of people in employment in the UK has risen by 354,000, to 32.69 million. A staggering 86 percent of this increase (304,000) has been in the 50 and over age group. It is, by far, the fastest growing employee age group in the UK. The number of self-employed workers for the first quarter of 2019 is also at the highest number ever recorded, at 4.93 million. 

Cost of retirement

The annual cost of being retired mounts up to an average of £11,830 a year, according to new analysis from equity release adviser Key, 35 percent more than the full basic State Pension of £168,60 a week. Key's analysis shows the two biggest weekly costs are utility bills- gas, electricity and water- and food, with both accounting for 20 percent of spending. 

The cost of retirement in the South East of England is nearly £4000 a year more at £14,270 than in the West Midlands where the cost is £10,280. 

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