Cashing out your pension isn’t simply dipping into a huge pot of money if and when you need it. You have the choice between a number of options including annuities and pension drawdown. For the average pension pot of £400,000 the difference between the most expensive and the cheapest pension is £2,120.12 per year. That could get you an all inclusive holiday for 2 adults and 2 kids in Lanzarote. Find out more about what pension drawdown is and compare the best pension drawdown for what you’re looking for.
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A pension drawdown or drawdown plan keeps your pension savings invested while you take a flexible income. You must be aged 55 or over and have a defined contribution or money purchase pension to get a pension drawdown.
Pension drawdown is a lot like an annuity – you can take 25% of your pension pot tax-free, but unlike an annuity, everything else stays invested. You can then move money from your pension pot into drawdown whenever you want to.
It’s a good idea to shop around to find the best pension drawdown for you, as there may be additional fees. As your pensions will need to stay invested, you will need to continue paying the personal pension or SIPP charges. There might also be setup fees or admin charges so check if your provider has these.
You might choose to go with the drawdown option that your current pension offers – a good choice if you shopped around to find your personal pension and there aren’t any additional fees for drawdown. Some pension plans don’t have a drawdown option, such as Moneybox and others, such as Nutmeg, might use a different provider for the drawdown option.
With pension drawdown, there’s not much that sets pension providers apart from one another except for the costs, and it’s not as simple as telling you which one is cheapest as it depends on how much you’ve got in your pot.
We’ve detailed the cheapest choices for different sized pension pots including the drawdown fees.
For smaller pensions, Legal & General offer pension drawdown at no additional charge. As your money will remain invested you’ll continue to pay the platform charge which is 0.25%.
In terms of investments, you choose between four objectives and an “investment solution” is matched to you, which is simply a ready made portfolio and a specific path you’ll follow.
Everything is explained pretty well and Legal & General have retirement agents who can be accessed over the phone to help you out.
Other fees might include a fund management charge, which is the cost to invest in a fund and will differ depending on your choices – you’ll come across this charge with any platforms that let you invest in funds.
If you want to invest more than £100,000, or have more than this in your existing pot then interactive investor is likely to work out the cheapest option for pension drawdown due to its set fee structure, rather than the approach other investment platforms use which works out a percentage of your investments. It charges £9.99 per month for its lowest account tier, plus you need to pay an additional £10 per month for the pension but that means you can set up all the other accounts like ISAs or Junior ISAs (JISAs) without paying any more. If you just want the pension, you can choose the Pension Builder plan for £12.99 per month.
It lets you invest in just about anything you like, including stocks, funds, ETFs and bonds. If creating portfolios isn’t your jam then it has a handy range of ready-made portfolios that you can choose from too.
It’s got other fees too, like fund management fees which cover the costs to invest in a fund. This differs based on your choices.
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If you’re a bit more conscious of your impact on the environment and want to think more about ethical investing in your pension then PensionBee could be the best pension drawdown for you.
PensionBee’s “Future World” plan aims to help you invest in companies that pledge to move to an environmentally-friendly economy. It’s actually managed by Legal & General, another of our best pension drawdown options.
It’s got one of the higher fees out of the platforms we looked at, but can you put a price on saving the world?
If you’re looking for a pension drawdown that lets you invest the rest in stocks and shares then Hargreaves Lansdown could be a good option for you. It can be more expensive than other pension providers but it has some remarkable guides and information to help you out.
It’s got a nice app to handle your trading and you can choose a pre-selected portfolio, get some suggestions on what to invest in or do it all yourself.
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There are some questions you’ll need to ask yourself when considering pension drawdown options. These include:
We outline the pros and cons of withdrawing your whole pension as a cash lump sum, and why this could result in a high tax bill.
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As well as its ISA and general investment options, you can also invest in a Wealthify pension. Find out the features and fees.
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This pension service offers freelancers and the self-employed a way to build up their pensions. Here’s all you need to know about Penfold.
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