Why should I shop around for pension drawdown?
Pension income drawdown is becoming one of the most popular ways to generate an income from your retirement savings.
In a drawdown plan, you keep your savings invested in the markets to keep growing, while taking a flexible income as you go.
Much like any financial product, it's vital that you shop around for the best value drawdown products. Fail to do so, and you could end up paying more in fees and charges than is necessary.
In a 2023 investigation, Which? found that the difference in growth between the cheapest and most expensive drawdown plans for a £260,000 pot (the average pot value) was nearly £18,000 over a 20-year period.
It is notoriously difficult to compare drawdown plans - but Which? has done the hard work for you, analysing the charges of dozens of drawdown providers and showing you how much drawdown might cost you during retirement.
How do pension drawdown charges work?
One of the major barriers to a straightforward comparison of costs is the fact that companies have very different charging structures.
You may incur five or six separate types of fee each year depending on the provider you choose. These could include:
- set-up fees
- annual administration charges
- platform charges
- dealing commission to trade funds and shares
You will also need to pay charges for the investments you select in your drawdown pension plan.
Some companies charge flat annual fees, while others charge a percentage fee based on the amount you have in your pension. Some combine the two types of fee.
It gets even more complex. Where percentage product or platform charges are levied in tiers according to the value of your fund, there are two different approaches.
Some providers have an 'income tax band' system, where, say, the first £50,000 of your pot has a fee of 0.45%, with the next £150,000 incurring a charge of 0.4% and so on.
The alternative tiered structure works on a 'whole fund' basis, with a charge at one rate, which will vary depending on the plan's overall value.
Pension drawdown plans compared
We've combed through the charges levied by 27 providers of pension drawdown - the most comprehensive analysis you can find.
In this table, you can find:
- The different types of company that offer drawdown
- Any fixed fees you might face
- Relevant overall charges for pensions worth £100,000, £250,000 and £500,000.
These figures are for core fees (Sipp admin, drawdown and platform charges) and were correct as of July 2023. 'L&P' is a life and pensions company, 'wrap' a wrap platform. 'MT' a master trust and 'OPC' an online pensions company.
Standard Life uses a bundled charging approach. This means investment and administration costs are combined.
The Royal London Pension Portfolio works in a similar way; the fee for its internally managed funds and Governed Range portfolios is included in the core charge, with discounts applied based on fund size.
In both cases, the lack of additional fund costs means that they won't work out as expensive overall.
Investment pathways and drawdown
The Financial Conduct Authority (FCA) had concerns that pension drawdown customers who didn’t get advice were making poor decisions with their money. So in 2021, it introduced a range of ‘investment pathways’ to provide four simple, good-value investments that could match retirees’ financial goals.
Pathway 1 applies if you have no plans to touch your money in the next five years, while Pathway 2 is targeted at those intending to buy an annuity within five years. Pathway 3 covers savers aiming to start taking money as a long-term income (the usual understanding of pension drawdown) within the next five years. Finally, Pathway 4 is for people who want to take out all of their money.
All four options come with their own nominated investment fund that’s chosen by the provider on your behalf. You can also either keep the money invested in existing funds or invest in new funds you’ve picked yourself.
Pathway fees compared
In November 2023, we looked at what 20 providers charged for someone with an initial pot of £250,000 going into drawdown via the different pathways. We assumed annual investment growth of 3% before charges are deducted.
The table shows comparative costs after five years for Pathway 3 (where you plan to start taking your money as long-term income). Pathway 3 was the most popular option among customers according to a majority of providers we asked in November 2023.
Notes: (a) Total charge includes fund charge, and is based on a starting pot of £250,000. Charges can vary by pot size, hence why some providers in the table with apparently lower ‘total charges’ for £250,000 can be more expensive for larger pots (b) Assumes 3% growth a year (c) Bundled fee combines platform and fund fees (d) Blended fee of 0.95% on the first £100,000 and 0.475% on the next £150,000
Pension drawdown companies: in detail
Our company profiles outline the charging structures for the main providers.
There is an annual Sipp admin fee of £75.
Advance's Retirement Account charges a percentage fee in tiers.
It works a bit like income tax bands - each percentage fee applies to different amounts held in the Sipp, rather than a single percentage fee applied to your entire pension.
It works like this:
- First £100,000 - 0.35%
- Next £150,000 - 0.30%
- Next £250,000 - 0.25%
- £500,000+ - 0.10%
Aegon has a £75 annual charge covering administration of drawdown, whether you take regular or ad hoc payments.
Platform/product fee
Aegon's Retirement Choice drawdown plan charges a percentage fee in tiers.
It works a bit like income tax bands - each percentage fee applies to different amounts held in the Sipp, rather than a single percentage fee applied to your entire pension.
It works like this:
- First £29,999.99 - 0.60%
- Next £20,000 (£30,000 to £49,999.99) - 0.55%
- Next £50,000 (£50,000 to £99,999.99) - 0.50%
- Next £150,000 (£100,000 to £249,999.99) - 0.45%
- £250,000 and over - 0.00%
Platform/product fee
AJ Bell Youinvest's Sipp charges a percentage fee in tiers.
It works a bit like income tax bands - each percentage fee applies to different amounts held in the Sipp, rather than a single percentage fee applied to your entire pension.
It works like this:
- First £0 - £250,000 - 0.25%
- Next £250,000-£500,00 - 0.10%
- Value over £500,000 - No charge
There are no charges for drawdown set-up and income withdrawals.
Aviva's OIS product charges a percentage fee in tiers.
It works a bit like income tax bands - each percentage fee applies to different amounts held in the Sipp, rather than a single percentage fee applied to your entire pension.
It works like this:
- Up to and including £49,999 - 0.40%
- £50,000 to £249,999 - 0.35%
- £250,000 to £499,999 - 0.25%
- £500,000 and over - No charge
There is an annual Sipp fee of £150 (levied by AJ Bell) and drawdown fee of £120.
Platform/product fee
Barclay Smart Investor's Sipp charges a single percentage fee on your entire pension pot. This is currently 0.2% per annum.
Bestinvest's Sipp charges a percentage fee in tiers.
It works a bit like income tax bands - each percentage fee applies to different amounts held in the Sipp, rather than a single percentage fee applied to your entire pension.
The bigger the pension, the lower the fee charged on all the money you hold.
It works like this:
- Up to £250,000 - 0.4% a year
- £250,001 - £500,000 - 0.2% a year
- £500,001-£1m - 0.1% a year
- Over £1m - No charge
When you move into drawdown you'll pay a Benefit Crystallisation Event fee of £180. There is also a payroll charge for taking annual income from the Sipp of £60, or £30 for one withdrawal, and a Sipp admin charge of £120 if you've less than £30,000 in your Sipp.
Platform/product fee
Charles Stanley Direct's Sipp charges a percentage fee in tiers.
It works a bit like income tax bands - each percentage fee applies to different amounts held in the Sipp, rather than a single percentage fee applied to your entire pension.
It works like this:
- Up to £250,000 - 0.35%
- A platform charge reduction to 0.20% on the balance of fund holdings above £250,000.
- A further platform charge reduction to 0.15% on the balance of fund holdings above £500,000.
- A further platform charge reduction to 0.05% on the balance of fund holdings above £1m.
- No charge on fund holdings in excess of £2m.
Platform/product fee
Close Brother's Sipp charges a percentage fee in tiers. There is also a Sipp admin fee of £180.
It works a bit like income tax bands - each percentage fee applies to different amounts held in the Sipp, rather than a single percentage fee applied to your entire pension.
It works like this:
- 0.25% on the first £500,000
- 0.20% on the next £500,000
- 0.10% on the next £500,000
- 0% above £1.5m
This is deducted monthly, and applies to unit trusts and OEICs, equities, investment trusts, exchange traded funds, Gilts and any other exchange traded securities.
EQi's Sipp charges a percentage fee in tiers.
It works a bit like income tax bands - each percentage fee applies to different amounts held in the Sipp, rather than a single percentage fee applied to your entire pension.
It works like this:
- 0.3% on the first £50,000, then
- 0.25% for values between £50,000 and £250,000, then
- 0.15% for values over £250,000 (max £250 per quarter for all bands or £1,000pa)
Platform/product fee
Fidelity's Sipp charges a percentage fee, which reduces depending on the size of your pension pot.
The bigger the pension, the lower the fee charged on all the money you hold.
It works like this:
- £0 to £7,499.99 - 0.35% with monthly Regular Savings Plan, £45 a year without.
- £7,500 to £249,999.99 - 0.35%
- £250,000 to £1m - 0.20%
- No further Service Fee is charged for assets held above £1m. The maximum fee you'll pay is £2,000
An annual Service Fee of 0.25%, plus an Investor Fee of £45 annually if not being paid on another account.
There are annual Sipp and drawdown fees of £180. The annual Sipp fee is £90 if the Sipp is worth £50,000 or less.
There are no annual platform fees.
It works a bit like income tax bands - each percentage fee applies to different amounts held in the Sipp, rather than a single percentage fee applied to your entire pension.
It works like this:
- £0-£250,000 - 0.45%
- £250,000 to £1m - 0.25%
- £1m to £2m - 0.10%
- Over £2m - 0%
The Pension Builder product has a fee of £12.99 per month and there are no drawdown charges.
It also now has a £5.99 per month Pension Essentials plan for people with pensions worth less than £50,000.
There are no platform fees.
A management charge of 0.25% of the value of the member's pot is applied each year.
There are four different investment pathway options with fund management charges of between 0.14% and 0.31%, which means overall charges of between 0.39% and 0.56%.
The funds for each option are as follows:
- No plans to touch money in next 5 years - Multi Index 5 Fund
- Buy an annuity within 5 years - Sterling Corporate Bond Index Fund
- Take money as long-term income within 5 years - Multi Index 4 Fund
- Take out all money within 5 years - Short Dated Sterling Corporate Bond Index Fund
LV's Flexible Transitions Account (extended funds) charges a percentage fee in tiers.
It works a bit like income tax bands - each percentage fee applies to different amounts held in the Sipp, rather than a single percentage fee applied to your entire pension. There is a minimum fee of £195 per year.
It works like this:
- First £700,000 - 0.3%
- Over £700,000 - No charge
M&G Wealth charges a percentage fee in tiers.
It works a bit like income tax bands - each percentage fee applies to different amounts held in the Sipp, rather than a single percentage fee applied to your entire pension.
It works like this:
- First £1m - 0.30%
- Next £2m - 0.10%
- Next £2m - 0.06%
It works a bit like income tax bands - each percentage fee applies to different amounts held in the Sipp, rather than a single percentage fee applied to your entire pension.
It works like this:
- First £500,000 - 0.33%
- Next £500,000 - 0.175%
- £1m+ - 0.05%
It works a bit like income tax bands - each percentage fee applies to different amounts held in the Sipp, rather than a single percentage fee applied to your entire pension.
It works like this for the Tracker drawdown option:
- First £100,000 - 0.50%
- Funds over £100,000 - 0.25%
A management charge of 0.5% of the value of the member's pot is applied each year.
The charging structure (income tax band) means that typically members will receive a rebate on their management charge of between 0.1% and 0.3% depending on how much is in their pot when the rebate is calculated.
- Up to £3,000, not rebate is given
- Over £3,000 and up to £10,000, we give back 0.1%
- Over £10,000 and up to £25,000, we give back 0.2%
- Over £25,000 and up to £50,000, we give back 0.25%
- Over £50,000, we give back 0.3%.
Prudential's Retirement Account charges a percentage fee, which reduces depending on the size of your pension pot.
The bigger the pension, the lower the fee charged on all the money you hold.
It works like this:
- £0-99,999 - 0.30%
- £100,000-£249,999 - 0.20%
- £250,000-£499,999 - 0.15%
- £500,000-£749,999 - 0.15%
- £750,000-£999,999 - 0.125%
- £1m or above - 0.10%
It works a bit like income tax bands - each percentage fee applies to different amounts held in the Sipp, rather than a single percentage fee applied to your entire pension.
It works like this:
- First £50,000 - 0.30%
- £50,001 to £250,000 - 0.25%
- £250,001 to £750,000 - 0.20%
- More than £750,000 - 0.15%
Royal London Pension Portfolio Income Release plan charges a percentage fee (1%), which is not a separate fee - it's built into the price of the investments you choose.
The fee for its internally managed funds and Governed Range portfolios is therefore included in the core charge.
Then, it applies a discount based on how much you have in your pension. The discount applies to your entire pension pot. The lack of additional fund costs means that this is a competitive option.
It works like this:
- £0-£42,800 - 0.10% per year, so the charge is 0.90%
- £42,801-£85,700 - 0.50% per year, so the charge is 0.50%
- £85,701-£257,000 - 0.55% per year, so the charge is 0.45%
- £257,001-£857,000 - 0.60% per year, so the charge is 0.40%
- £857,000+ - 0.65% per year, so the charge is 0.35%
Scottish Widows' Retirement Account Sipp charges a percentage fee, which reduces depending on the size of your pension pot.
The bigger the pension, the lower the fee charged on all the money you hold.
It works like this:
- £0-£29,999 - 0.90%
- £30,000-£49,999 - 0.40%
- £50,000-£249,999 - 0.30%
- £250,000-£499,999 - 0.25%
- £500,000-£999,999 - 0.20%
- £1m+ - 0.10%
Standard Life's Investment Pathways Option funds have a bundled charge. The fund management charge (1.02%) includes both investment and administration costs, meaning that the product is cost effective overall.
The bigger the pension, the lower the fee charged on all the money you hold.
It works like this:
- Up to £25,000 - discount of 0.30%, so effective plan charge of 0.72%
- £25,000+ - discount of 0.50%, so effective plan charge of 0.52%
Transact charges a percentage fee in tiers plus an £80 Sipp pension wrapper charge.
It works a bit like income tax bands - each percentage fee applies to different amounts held in the Sipp, rather than a single percentage fee applied to your entire pension.
It works like this:
- First £600,000 - 0.26%
- Next £600,000 - 0.17%
- £1.2m-£5m - 0.07%
- On the remainder - 0.05%
There are no additional charges for going into drawdown.
The existing charging structure applies - Platform fee (0.15%) + Fund Fee + Fund transaction costs (Stamp duty).
Platform fees are capped at £375 annually (this cap is applied across all assets held in an investor's name on the platform, e.g. across ISA, SIPP, and General Account).
