Pension Drawdown Charges

It is notoriously difficult to compare pension drawdown charges across providers.

However, it is essential to gain a thorough understanding of the fees and charges involved to ensure headline and hidden pension drawdown costs do not erode the value of your pension and impinge your long-term retirement income.

Hilltop Financial Planning has developed this guide to drawdown pension charges to help you remain informed and in control.

How Much Does Pension Drawdown Cost?

There are various drawdown charges which can vary depending on the provider you choose. The following examples illustrate some of the main drawdown fees you may need to consider when weighing up your options: 

  • Setup/admin fees – Either a fixed charge or a percentage cost based on the size of the pension pot.
  • Withdrawal fees – Either on the initial 25% tax-free lump sum and/or each additional withdrawal.
  • Exit/Transfer fees – Moving to another provider may incur fees based on the size of the pension pot. 
  • Investment funds – A percentage fee based on whether your fund is actively or passively managed.
  • Share dealing – Some providers charge a fee based on each transaction, whether buying or selling assets.
  • Financial advice – Likely a flat fee or percentage cost based on the complexity and size of your pension.

Comparing pension drawdown costs across multiple providers is notoriously difficult. Fee structures can be confusing at first glance and aren’t helped by the fact that providers often use different terminology for the same thing.

So it is essential to carry out extensive research before you decide to switch providers to take advantage of any potential fee savings. The advice of an independent financial adviser can help you to find the most appropriate product for you.

Hilltop’s Pension Drawdown service can provide the support you need to make an informed decision.

How Do Pension Drawdown Charges Work?

In practice, some pension drawdown providers may charge flat management fees on an annual basis, whereas others will charge a percentage fee based on your total pension savings or number of transactions they need to process per annum.

Then there are others that might even combine both methods. To complicate matters further, percentage charges usually fall into one of two methods:

  • Tiered/tax-band – A tiered or tax-band style system levies a charge based on the fund value. For example, 0.45% on the first £50,000 of your pension pot and 0.4% on the next £150,000.
  • Whole fund – A whole fund tiered structure works by levying a single rate charge that varies according to the overall value of the plan.

It is also worth remembering that income tax (though not a drawdown fee per se) may also be payable depending on how much income you draw down and which tax band that subsequently puts you into.

Pension Drawdown Charges Frequently Asked Questions

What Is The Potential Impact Of Charges On Your Retirement Income?

Perhaps unsurprisingly, pension drawdown fees can eat into your pension savings and ultimately reduce the amount of retirement income available to you. Higher fixed fees and above-average fund charges can be an especially problematic combination. 

Therefore, it is important to think carefully about the impact of pension drawdown charges, paying particular attention to the size of your pension, as the wrong choice can have costly consequences.

What Are The Typical Management Fees Associated With Pension Drawdown?

The typical management fees involved with managing an investment fund range from 0.1% for a passive fund that essentially matches the performance of an index or market to 0.8% for an active fund that aims to outperform these benchmarks (with a fund manager actively managing investments) and 1% for a multi-asset fund. 

While the fees associated with a passive investment fund are likely to be cheaper than those of active or multi-asset funds, those savings may not be worthwhile if your investments are not working hard enough for you.

Remember too that the total cost of owning a fund also needs to be factored in, paying close attention to hidden costs, such as transaction charges. 

Are There Any Upfront Charges When Setting Up Pension Drawdown?

Some providers will charge an upfront setup fee when you opt for pension drawdown. However, there are plenty of providers that don’t.

One of the vagaries of trying to compare drawdown costs across providers is that a provider may offer zero or minimal fees in one area but higher charges in another. As such, it pays to enlist the expertise of an independent financial adviser to compare drawdown charges confidently.

How Do Platform Fees Affect The Overall Cost Of Pension Drawdown?

Some providers charge an annual platform fee, which essentially covers the ongoing administration costs of your pension. These admin fees can either be in the form of a fixed fee or a percentage of the money you have saved (either based on the entire portfolio or using a tiered system). 

As you might imagine, these income drawdown costs will typically be somewhat cheaper with a DIY platform compared to a more complex pension. Again, these flexible drawdown charges can quickly add up and increase the overall cost of a pension drawdown plan.

Do Charges Vary Depending On The Size Of The Pension Pot?

Yes. Flexi drawdown charges can often vary depending on the size of your pension savings. In some cases, if the value of your pension pot is high, pension providers may offer you discounts on the fees they charge.

Also, financial advisers like Hilltop, can often negotiate better rates for pension drawdown than you may receive by going directly to the provider.

How Easy Is It To Withdraw Funds When In Drawdown?

This can also be a defining factor when choosing a drawdown provider. Some providers are more flexible, allowing you to withdraw online, through an app and as regularly as you like.

However, some older pensions may not even offer drawdown as an option, or may add restrictions to the withdrawal rate. For instance, in some cases you may only be able to make withdrawals once a month.

Pension Drawdown Advice

Learn More About Pension Drawdown

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Important information: Our website offers information about investing and saving, but not personal advice. If you’re not sure which services are right for you, please request advice from Hilltop’s financial advisers. Remember that investments can go up and down in value, so you could get back less than you put in.

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