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What Is The Minimum Pension Pot I Need For Pension Drawdown

24/08/17 Pension Drawdown

What is the minimum pension pot I need for pension drawdown is a question we are often asked? Assuming a pension provider offers pension drawdown as an option then, in principle, there is no minimum. The key issue to consider is fees.

There is a wide variation in fees and how they are charged across providers. Typically, there will be some fixed costs such as set up costs and annual management fees and some variable costs associated with each action you take. For example, many pension drawdown providers will charge a fee every time you make a withdrawal from your drawdown fund 

A drawdown account could be set up to hold less than one thousand pounds. However, most providers tend to insist on a minimum somewhere between £10,000 and £50,000. Fixed charges are the enemy of a small fund.

As an example let’s assume a £10,000 fund in drawdown and fixed annual charges of £500. £500 is 5 percent of £10,000 so in year one the investment growth in that year will need to be 5 percent (ahead of inflation) just to maintain the funds initial value. 

If we assume a drawdown pension fund of £150,000 then with annual charges of £500 the fund will be depleted by 0.33 percent in year one. Investment growth should be able to cover this (and some!).

If you have several small pension funds one potential solution could be to combine them in one pension drawdown fund. If you do take this route it is important to make sure no valuable benefits are given up before moving funds.

Fixed fees may be the major issue with small funds but you should also check transactional charges are reasonable before choosing a pension drawdown service provider. If you do decide on the pension drawdown option it is important to keep a check on fees moving forward. 

Should you have any questions about pension drawdown open a Chat or give us a call on 0800 043 8341 or to request a call back complete the form below.

 

This blog is intended to provide a general review of certain topics and its purpose is to inform but NOT to recommend or support any specific investment or course of action. The past is not a guide to future performance. The value of investments can go down as well as up and you may not get back the full amount you invested. Tax and financial regulations can change. Any figures quoted above are at the date of publication.