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Michelle Monck

Michelle Monck

Consumer Finance Expert
Published: 04/12/2020

Latest analysis from interactive investor (ii) has revealed that personal pension providers have begun competing in earnest for drawdown customers, with many platforms reducing or removing drawdown fees altogether. Could this be a good time to consider pension drawdown?

Who’s cutting fees?

AJ Bell has announced that it will remove its drawdown fee from January, hot on the heels of ii which removed the drawdown fee on its SIPP in October. Vanguard is following suit, announcing that it’s launching a drawdown option for personal pensions with no drawdown fee whatsoever. 
These moves mean those who want flexible access to their pension pot are now able to do so freely, without paying the pension provider every time they want access. Charges on drawdown could essentially cut into the benefit of any funds withdrawn, so this enhanced competition comes at a great time for retirees who may be wondering what to do with their pension pot. 
“We welcome the key trend towards zero-charge drawdown fees, particularly at a time of strain for some people in or approaching retirement,” said Becky O’Connor, Head of Pensions and Savings for interactive investor. “The difference that all pension fees make to someone’s pension pot over the decades is massive.” 
If you’re considering your retirement options – or are looking for a new platform to start or continue investing into – let’s take a look at what pension drawdown actually is and why you may want to consider it. 


What is pension drawdown?

At retirement there are a few key options in how to take an income from a pension pot, one of which is pension drawdown (otherwise known as income drawdown). This allows retirees to “draw down” funds from their pension pot in order to provide an income, while keeping the rest of their funds invested, offering the potential for further growth. This gives retirees a lot more control over how to spend their pension pot, with the potential downside being that there’s the chance pension holders could empty their retirement pot too quickly if they don’t keep an eye on how much is drawn down. 
Those thinking about pension drawdown should also make sure they consider any tax implications on the income the receive. This includes whether using money held in ISAs for income might be more tax efficient in the first instance. 
This is in contrast to an annuity, which is where you use your pension to “buy” a guaranteed income at the outset, with your payments being fixed throughout retirement. This has the advantage of guaranteeing you’ll never run out of money, but unlike drawdown, you’re not in control and have essentially sold your pension savings to an annuity provider.
For this reason, opting for a combination approach is often the preferred choice, giving retirees a smaller guaranteed income while keeping the rest of their funds invested and available when they need it. Now that competition is heightening among drawdown providers, the benefits become even more apparent; find out more in our guide to pension drawdown.



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