Choosing The Wrong Drawdown Provider Is Costly

Choosing The Wrong Drawdown Provider Is Costly
Simons Town South African by Julian Cohen. Why?

If you pick the wrong drawdown provider, it could reduce your pension fund by more than £10,000, so here’s some helpful guidance

Don't Let Your Pension Fund Diminish Due To Drawdown Charges

Shock Drawdown Exposé

Analysis by consumer champion Which? has revealed you could find your pension fund being depleted by as much as £10,000 as a result of the enormous variation in charges imposed by pension providers for accessing your savings using drawdown.

From age 55, you can draw benefits from your pension.  Instead of giving up your fund and buying an annuity, you leave your money invested and drawdown an income from your fund.  For a brief summary of drawdown and the other options open to you, watch the short view below.

Drawdown Findings From The Which? Report

Which? looked at 18 pension providers to discover the cost of accessing your money in drawdown.  The table below details its findings.


Under pension freedoms, you’re entitled to put your pension into drawdown, but Which? discovered that many pension providers don’t offer the drawdown option.  If you’re unlucky enough to be with one of these companies, you could face exit costs and set up penalties in moving your money to a pension provider that does allow drawdown.  What’s more, some providers may require you to seek advice from a suitably qualified independent financial adviser before they accept your money, increasing the cost of the exercise.

Unfortunately, there is no effective way of comparing all the costs involved in putting your pension into drawdown, other than ringing every drawdown provider.

Six of the pension providers in the Which? survey charge to set up a drawdown plan.  Seven charge an annual fee for using drawdown.  Eight charge an annual fee if you have a SIPP.  Another seven levy a simple annual fee to access their platform but there could be extra fees and charges imposed for certain investments. You can read the full Which? drawdown report here.

Which? CEO Richard Lloyd On The Drawdown Report

The old annuity market failed pensioners miserably and the government must ensure the same thing doesn’t happen again with drawdown. With such big differences in cost, and confusing charges that make it difficult to compare, it’s clear more needs to be done to help consumers make the most of the freedoms. We’re campaigning for a cap on charges for drawdown products sold by someone’s existing provider to ensure people get good value for money.

Drawdown Using Evolution SIPP

The Which? survey was based on a pension fund of £250,000, which is about the average for Evolution SIPP.  Like many Evolution SIPP holders, if you're a lender for your drawdown fund in areas like high interest loan notes and corporate bonds and crowdfunding and peer-to-peer, Evolution SIPP offers a more competitive solution for drawdown than all of the companies in the Which? report. 

There are no set-up costs and no exit fees.  At an annual fee of £1,250 plus VAT for everything, no matter what version of drawdown you're in, Evolution SIPP is an obvious choice.  And with access to a much wider range of HMRC acceptable assets than any of the pension providers in the list above, it’s arguably far more flexible too!

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AJ Bell Is The Best Value SIPP For Stockmarket Assets

That's our opinion.  Not just because AJ Bell was the first company to offer an online SIPP.  Nor that it's received many prestigious awards.  And not even because the wife of SIPPclub's Founder has an AJ Bell SIPP.  It's because it's one of the most competitive stockmarket SIPPs on the market. 

Over time, charges can wipe out a huge part of your fund.  We like AJ Bell because there are no set-up costs.  If you hold passive funds, which is our preference, or shares, investment trusts, EFTs, gilts or bonds, you pay one small fixed fee no matter how large your fund.  And when you come to draw your benefits either as occasional drawdown or UFPLS payments, there's a small charge for the whole year no matter how many times you access your money (many SIPP and SSAS providers charge more than this for each payment).

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As SIPPclub neither advises on, nor arranges, nor recommends specific investments or strategies, we're unable to say whether a SIPP or SSAS or any investment within it is right for you. Ultimately, it’s your money and your decision, and you should only proceed once you're satisfied you've undertaken sufficient due diligence. If you need advice, you should speak to your trusted adviser, or you could find a local adviser from  Alternatively, we'd be pleased to introduce to a suitably qualified independent financial adviser.

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