If you’re seeking flexibility in retirement, then drawdown might be the right option for you, but choosing which provider to put your money with can be a difficult task.
Drawdown, also known as flexible drawdown or flexi-access drawdown, is a way of taking an income from your pension as and when you need it. Find out more about how it works and how it compares to other options in our guide Your pension options at retirement.
It can be very difficult to compare drawdown plans, but one of the most important considerations is cost. In a 2022 investigation, consumer association, Which? found that the difference in growth between the cheapest and most expensive drawdown plans for a £260,000 pension (the average value) was nearly £18,000 over a 20-year period.
If you’re considering getting professional financial advice, Unbiased is offering Rest Less members a free pension review. It’s a chance to have a qualified independent financial advisor (IFA) take a look at your pension arrangements and give an unbiased assessment of your retirement savings.
The review is free and without obligation, but if the IFA feels you’d benefit from paid financial advice, they’ll go over how that works and the charges involved.
Here, we explain your pension drawdown options, and some of the things you need to consider when you’re choosing the best provider for you.
How pension drawdown works
When you use pension drawdown, you leave your pension savings invested to hopefully grow in value, while drawing an income from your pot. However, as your money remains invested, your pension savings could fall as well as rise in value, so you’ll need to be comfortable accepting that drawdown involves some risk.
Pension rules enable you to withdraw a maximum of 25% as tax-free cash from the age of 55 (find out more about how this works below). You can find out more about drawdown in our article What is pension drawdown and how does it work?
Drawdown is only an option if you have a defined contribution, also known as a money purchase, pension, where the amount saved depends on how much is paid into the pension, and how your investments have performed over time. If you’ve a final salary or defined benefit pension, you’ll receive a gold-plated income at retirement that’s guaranteed, and based on how many years you’ve paid into the scheme and a percentage of your salary. Find out more about how these different types of pension work in our guides What is a defined contribution pension? and What is a defined benefit pension?
What are the different types of drawdown schemes?
The main types of drawdown plans essentially offer ways of drawing your pension a bit at a time. As mentioned, you’re able to take 25% of your pension as tax-free lump sum from age 55. However, you don’t have to take this money at the start. You could, for example, take 25% as tax-free cash each time you draw down money from your pension over the years, while paying tax on the remaining 75%. This type of drawdown scheme is known as an Uncrystallised Fund Pension Lump Sum (UFPLS). If you want to use UFPLS, check that the drawdown provider you choose offers this, as they aren’t obliged to do so, but it could be the more tax-efficient option for you, depending on your individual circumstances.
Drawdown is often used to spread pension withdrawals over a number of years to reduce the amount of tax you pay on your retirement income. Find out more about how pensions are taxed in our article How much tax will I pay when I withdraw my pension?
How to choose a drawdown plan
You may choose to stick with your current pension provider’s drawdown option, if they offer one. However, you’re free to shop around and move your pension to another drawdown provider if you find one that is more suitable for your needs. When choosing a drawdown provider, you’ll want to consider the plan’s cost, flexibility, investment choice and customer service.
Helen Morrisey, senior pensions and retirement analyst at Hargreaves Lansdown, said: “There are several factors to consider when choosing a drawdown provider. The first thing is to ensure you can access the range of investments you need – does the provider allow you to invest in a way that supports your values and appetite for risk? Some providers offer more options than others and if you need some help with choosing funds it’s worth checking to see if your provider offers ready made options or educational materials.
“Cost is also very important – providers can present their charges differently so it can be difficult to compare – but it’s vital you understand what you are being charged and why. Service will be another key factor – what research and tools do you need to support your choices? Does your provider allow you to access your money in the way that you need and can you engage with your provider in the way that suits you best?”
Before making a decision, check customer reviews online using websites such as Trustpilot to ensure that you’re comfortable that it has reliable customer service and a good reputation. But, of course, the importance of the different factors to consider when choosing a drawdown plan will vary from person to person.
What you’ll pay for a drawdown plan
Your current pension provider may not be the most cost-effective option. The cost of pension drawdown varies widely, and is arguably the most important factor when choosing a provider, as charges can rack up into thousands of points over the course of retirement. It’s important to consider any other source of income you have, such as the State Pension or income from a final salary pension, too, as these will affect your drawdown income needs. The best drawdown provider in terms of charges is usually based on the size of your pension pot (see the tables below for examples).
You may pay a number of different charges each year for a drawdown plan. For example, these may include set-up/administration fees, fees for the withdrawal of a tax-free lump sum, fees on additional withdrawals, tax on each withdrawal at your marginal rate, transfer or exit charges, and fees for ongoing fund management.
Platform charges are usually one of your main costs, and may be a percentage fee based on the value of your pension, or a flat-fee. Which is most suitable depends on the value of your pension, and for a larger pot, a flat-fee may be a cheaper option. However, percentage fees often vary depending on the value of your fund, with some providers lowering the fee as your pension value increases (see our table below).
The cheapest pension drawdown provider for you
There are dozens of drawdown plans on the market, but here is an overview of some of the cheapest providers based on the value of your pension.
Cheapest pension drawdown provider for pensions worth around £100,000
Provider | SIPP fee (per year) | Drawdown fee (per year) | Platform fee | Overall cost |
Vanguard | £0 | £0 | 0.15% | £150 |
Interactive Investor | £156 | £0 | 0.00% | £156 |
AJ Bell Youinvest | £0 | £0 | 0.25% | £250 |
Cheapest drawdown provider for pensions worth around £250,000 (about the average pension value)
Provider | SIPP fee (per year) | Drawdown fee (per year) | Platform fee | Overall cost |
Interactive investor | £156 | £0 | 0.00% | £156 |
Halifax | £180 | £180 (£375 after the age of 75) | 0.00% | £360 |
Vanguard | £0 | £0 | 0.15% | £375 |
Here’s a fuller overview of the charges from some of the biggest pension drawdown providers for comparison purposes, depending on the value of your pension:
Provider | Annual SIPP fee | Annual Drawdown fee | Basic annual charges for pensions worth up to £100k | Basic annual charges for pensions worth up to £250,000 | Basic annual charges for pensions worth up to £500k |
AJ Bell Youinvest | £0 | £0 | 0.25% | 0.25% | 0.18% |
Aviva | £0 | £0 | 0.38% | 0.36% | 0.31% |
Bestinvest | £0 | £0 | 0.40% | 0.40% | 0.3% |
Charles Stanley Direct | £0 | £0 | 0.35% | 0.35% | 0.28% |
Close Brothers | £180 | £0 | 0.43% | 0.32% | 0.29% |
Fidelity | £0 | £0 | 0.35% | 0.20% | 0.20% |
Halifax | £180 | £180 | 0.36% | 0.14% | 0.07% |
Hargreaves Lansdown | £0 | £0 | 0.45% | 0.45% | 0.35% |
Interactive Investor | £156 | £0 | 0.16% | 0.06% | 0.03% |
PensionBee | £0 | £0 | 0.50% | 0.35% | 0.30% |
Royal London pension portfolio | £0 | £0 | 0.45% | 0.40%* | 0.40%* |
Scottish Widows Retirement Account | £0 | £0 | 0.30% | 0.25% | 0.20% |
Vanguard | £0 | £0 | 0.15% | 0.15% | 0.15% |
*Royal London Pension Portfolio includes the fee for its own funds and Governed Range portfolios in its percentage charge.
The best low-cost provider, according to Times Money Mentor, is Vanguard. Its drawdown plan receives five stars, with very low charges of 0.15% capped at £375 a year.
The best drawdown provider for customer service is Aviva, although charges vary depending on the value of your pension.
If you’re seeking a wide range of investment options alongside low charges, you may want to consider AJ Bell Youinvest’s drawdown plan, which received four stars from Times Money Mentor for its drawdown plan and five stars for its SIPP.
Can I switch drawdown providers?
You can transfer a pension that is already in drawdown, just as you are able to switch your personal pension from one provider to another. Therefore picking a drawdown provider isn’t a decision that’s set in stone, and you can change your mind if the option you’ve chosen isn’t working for you.
Tom Selby, head of retirement policy at AJ Bell, said: “It should be straightforward to switch providers and it shouldn’t cost you anything in most cases. When moving from one provider to another you should check your policies don’t have any valuable guarantees that might be lost. Your existing provider should be able to tell you if this is the case.
“There are all sorts of reasons for transferring, including getting better service, paying less, having more choice over investment and income options, or a combination of the above.”
Where to go for more help
Choosing a drawdown provider can be a difficult process, particularly when providers may not make it easy to compare their charges and what they offer. To ensure you make the right choice, you may want to consult a financial advisor. They will be able to go through your particular needs and advise on which provider is most suitable for your circumstances.
For more information, check out our guides on How to find the right financial advisor for you or How to get advice on your pension.
An IFA can look at the charges and service a provider offers on your behalf, saving you the time and effort, while also giving you peace of mind that you’ve made the right decision for you. An adviser will also take the time to discuss your retirement goals, and changing needs over the years.
If you’re 50 or over and have a defined contribution pension, you can get free guidance on the pension options available to you from the Government’s Pension Wise service.
If you’re considering getting professional financial advice, Unbiased is offering Rest Less members a free pension review. It’s a chance to have a qualified independent financial advisor (IFA) take a look at your pension arrangements and give an unbiased assessment of your retirement savings.
The review is free and without obligation, but if the IFA feels you’d benefit from paid financial advice, they’ll go over how that works and the charges involved.
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