What points should I be looking for in a Drawdown pension paying SIPP?
14 December 2021
Question by Rosemary
Drawdown Pension, I have been told by my pension holder that they are closing up and transferring all accounts over to MoneyFarm. Having looked at your best buy Pension Robo holders I am not impressed. As a person who is already in drawdown payments, I was considering A J Bell to transfer to. What points should I be looking for in a Drawdown pension paying SIPP?
Answered by Samantha Secomb
What a complete nuisance for you to have to revisit your pension decision because your provider has decided to withdraw from the UK market, but let me see if I can help.
Did you see that Holly reviewed the deal done by Wealthsimple with Moneyfarm and believes it to be as good as they could manage? There are no alarm bells being rung to warn investors to interrupt the automatic transfer unless they have a specific reason and Moneyfarm are offering price parity as a minimum. If cost was an important point and simple pre-packaged investment solution with no additional charges for drawdown access then it will probably work for you.
If you want specific advice on whether AJ Bell is right for you then you will need to check in with an adviser and talk through your specific objectives, but they offer something quite different to your existing arrangement. If you use a trading platform like AJ Bell you will need to select your own investment strategy and investors who opt for robo-adviser platforms (like Wealthsimple) are not usually impressed by this capability and prefer it to be pre-packaged. It is worth considering which camp suits you best and selecting accordingly. You may find it a complete faff to have to select an investment strategy on a trading platform as there are many options to work through and if it doesn’t interest you it will feel like a chore.
In terms of your specific question about what points to consider specific to drawdown pension:
You say you are in drawdown and so I assume you have already taken your Pension Commencement Lump Sum (PCLS) and the whole of the fund is designated for drawdown – this is sometimes referred to as “crystallised” - so setting up regular withdrawals will be quite straight forward. If, however, you still have some “uncrystallised” benefits you will still be able to take some of the pot tax free and it will need to be “crystallised” at some point. Some pension providers have very clunky systems if you want to take regular Uncrystallised Fund Pension Lump Sums (UFPLS) which is where 75% of the withdrawal is taxable and 25% is tax free PCLS. If this method of taking regular withdrawals is of interest, then check any pension provider you are considering has a slick and automated method of delivering it.
Another consideration is how often a drawdown provider runs the Pay As You Earn (PAYE) process that governs the tax reporting and what the cut off dates are for requesting a drawdown. It can be frustrating to believe you can arrange for your payments to start or change from next month only to find out that it is too late for the PAYE run, and the it won’t therefore happen until the following month.
Some pension providers charge a specific fees for drawdown facility. In fact AJ Bell do currently although I believe this is due to cease from January. It is always worth checking and comparing costs.
I hope this helps