What will pension drawdown cost us to manage ourselves?
By Mike Narouei, Content Producer at Boring Money
2 May, 2017
Working out the costs of a self-managed drawdown pension can be head-bangingly difficult which is why many journalists avoid taking this subject on. The charging structures get a lot more complicated for people in drawdown who are taking out cash. Here’s a look at some of the larger drawdown players today.
These guys have a Ryanair charging model – it’s very much based on a pay as you go principle. This can mean there are lots of bitty fees to consider, but you’ll only pay for what you do.
This platform will charge you a ‘custody’ fee of 0.25% for the first £250,000 (charges start reducing beyond that). It then costs £1.50 to buy and sell funds and £9.95 for shares.
If you are in drawdown and take a regular income payment, there’s an extra £100 + VAT administration fee. Any one-off income payments will be charged at £25.
If you close your account within 12 months, there’s a £295 fee.
Here are the charges.
This provider falls into the Ryanair camp too and has a fixed cost for providing a SIPP, rather than a % fee.
There is a SIPP monthly account charge of £17.50 + VAT (£21). Once they choose to go into drawdown/ take a regular income then this monthly charge increases to £23.75 + VAT (£28.50) at their next payment due date.
There’s no fee for taking your tax free lump sums but you will be charged £40 + VAT per transaction for taking your UPFLS (that’s basically “cash” or “lump sum” in plain English!) if you haven’t started drawdown yet.
This page details the Alliance Trust Savings SIPP charges.
This US powerhouse falls into the British Airways charging model. It’s a single 0.35% charge for everything. And that’s it. Nice and easy. This makes it pretty competitive for smaller accounts. Once you get over £100,000 in your SIPP, the fixed £ fee and Ryanair guys start to look more competitive BUT it depends on how often you take income, how often you buy and sell funds and how you use your pension.
Here are Fidelity’s charges.
These guys have a British Airways charging model. They think about what most people will do and charge a basic fee which is pretty much all-inclusive.
The charges start with a 0.45% platform fee on everything you hold (although it is capped at £200 a year for any portion you have in shares or investment trusts.) If you have more than £250,000 with them the costs fall. It costs £11.95 to buy shares and there’s no fee for buying funds. This 0.45% fee covers all income payments. It is quite hard to compare a % charge with a fixed fee and Ryanair model. If you plan on using your pension like the bank account, as Osborne’s spin doctors put it, having an all-inclusive % fee might be best for you.
There’s an early account closure fee of £295 + VAT.
Here are the Hargreaves Lansdown charges.
Other providers you might want to think about include Bestinvest. They’re pretty small in the pension game today but have a very decent 0.30% charge for SIPP assets. It’s £7.50 to trade shares, with no fee for funds. There’s an initial drawdown calculation fee of £90-£100 + VAT. If you have less than £100,000 in the SIPP they charge £100 each year for income payments (free if you have more than £100 grand) and it’s £25 for ad hoc payments.
And if you try and sneak off before a year they’ll charge you £290 + VAT.
Here are Bestinvest’s charges.
PS folks – just one note of caution. If you’re planning to move your pensions into one of these, just to turn around and take it all out as cash (some people want to do this because their current pension provider won’t let them take the cash), they are onto you and there are early exit penalties in place. They know that some pensions providers aren’t supporting people taking cash out and they understandably don’t want to be used and abused just to help you get your mitts on your cash, and then unceremoniously dumped.
Here’s what Hargreaves Lansdown’s Tom McPhail had to say about it,
- “…if someone transfers their money in, sets up a flexible drawdown contract and then takes out their money in the first 12 months, we will make a one-off account closure charge of £295+VAT.
- “That is simply because otherwise we will have loads of people washing their money through our drawdown. We will have done all the work and all the administration and then they just take their money out and we have made nothing. That is to protect the business.”
PPS Managing your own drawdown does carry risk. Markets can tank. And you might run out of money too soon. Not a good option for unconfident investors. If you fancy chatting through this all with someone, you can find a local independent financial adviser through VouchedFor or Unbiased. This is too important to get wrong for the sake of trying to save a few quid.