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Pension Drawdown Charges – An Overview

02/09/16 Pension Drawdown

When considering your retirement options it is important to fully understand pension drawdown fees and charges to make an informed decision.

Fees and charges can reduce the value of a pension fund in drawdown by tens of thousands of pounds over the long term. It is important to choose the right drawdown product to deliver the required flexibility at an acceptable cost.

Types Of Pension Drawdown Charges

As part of the pension drawdown setup process it is important to consider the wide number of potential fees that may be applied, they include:

  • Drawdown set up fee.
  • Transfer in fee.
  • A charge to convert from capped drawdown (If applicable).
  • Charges for one-off or regular withdrawals.
  • A fee to transfer out.
  • Adviser fee.
  • SIPP setup and management fees.
  • Annual management charges applied to the funds you invest in.

It is unlikely all of these fees will apply. Some providers will charge some fees but not others. They may charge a significantly higher fee for one or more items than the industry average. Making a direct comparison between two or more options can, therefore, be difficult. Worse still, those without the relevant experience can find some fees are difficult to spot in the documentation delivered by providers.

Charges Erode Investment Value

All pension arrangements have some level of fees applied. These may be charged as a fixed  sum, hourly rate or as a percentage of the fund value. Fixed fees and hourly charges can be a few tens of pounds to low hundreds. These can be advantageous for larger funds but costly for smaller ones when compared to percentage charges. The level of fees can vary substantially depending on the provider and the chosen plan.

Conclusion

In the current market, drawdown offers a number of advantages when compared to an annuity but it is important to understand the true costs of taking your retirement benefits in this way. To maximise investment growth it is vital to choose the right drawdown product, understand the pension drawdown charges and the potential impact of those fees.

There may be a cost associated with taking professional advice but that should be measured against the cost of making inappropriate decisions. Should you need any help understanding pension drawdown or fees then give us a call or open a Chat and we will be happy to help. If you would like to discuss your retirement options complete the form below and we will call you back.

 

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 correct at the date of publication.