Are you seeking different ways to use your pension? To keep a portion of the money invested and use the rest as income? One option is flexible retirement income. A way of getting pension income when you retire while allowing your pension fund to keep on growing. A means of withdrawing gradually through a drawdown pension while you leave your money invested and take a regular income directly from the fund instead of using all the money in your pension fund to buy an annuity. In this guide, you will find out everything you need about the best flexible drawdown pension without leaving out the charges, provider, or calculator.
What Is a Flexible Drawdown Pension?
Pension drawdown, also known as pension income drawdown, is a flexible way to receive money from your pension while it is still invested. It is a method of withdrawing funds from your pension fund to live on during retirement. This means you can take a retirement income while still having the option to profit from investment gains over a longer period of time. You would lose on the other hand if you bought an annuity or took all of your pension funds as cash.
Likewise, it may allow you to choose how and when you receive your pension. At the same time, you can make a tax-free lump-sum payment of up to 25% of the amount. The remainder of the fund will be like an investment, providing it with the opportunity to expand. In this case, you can then choose whether you want a regular income or small amounts as needed. Your investment pot’s value can go up as well as down; therefore, the income isn’t assured.
In addition, this type of drawdown policy was available before April 2015. If you had a guaranteed income of £12,000 each year, you could take limitless withdrawals from your fund (before tax). It wasn’t accessible to everyone in the same way that it had been since April 2015.
After April 2015, every flexible drawdown arrangement set up before April 2015 was automatically converted to a Flexi-Access drawdown arrangement.
Pension Drawdown Rules
Generally, pension drawdown is available at the age of 55 under current guidelines. However, if you are in poor health, have a terminal condition, or have a job that allows for a lower protected retirement age, you may be eligible to shift into drawdown sooner.
The government, on the other hand, used to impose harsher regulations on income drawdowns, limiting how much you could take unless you already had a specific level of retirement income from other pensions.
Nevertheless, following the implementation of the pension freedom rules in April 2015, you can now withdraw as much or as little as you like from your drawdown plan. Managing your withdrawals to ensure that your pension money lasts throughout your retirement should, however, remain a top concern. This is sometimes referred to as having a stable source of income.
How It Works
Typically, to utilize your pension plan more freely, you may be able to set up a drawdown agreement with your existing provider, or you may need to transfer to a different provider. Check that you won’t lose any valuable assurances or have to pay fees before transferring.
However, when you convert some or all of your pension into a drawdown, you can then normally take up to 25% of your pension pot as a tax-free lump payment. The funds you remove after receiving your 25% tax-free lump sum are taxable as earnings during the year you remove them. Likewise, you’ll have to determine where to put the 75 percent of your retirement savings that you’ll be taking out in drawdown.
In other words, you should select funds that are appropriate for your anticipated withdrawals and risk tolerance. It’s critical to consider your investment options as well as when you might need to make a withdrawal. Also, keep in mind that this income isn’t guaranteed because investments can go up as well as down. So, you may run out of money if you take out too much money too quickly.
Nonetheless, you can also put a portion of your pension fund into income drawdown over time. You can withdraw up to 25% of each amount from your retirement account tax-free and put the balance into a pension drawdown. It’s also known as phased or partial drawdown.
Flexible Drawdown Pension Charges
Depending on the service you choose, the cost of the pension drawdown can be very different. Generally, some fund administrators charge a fixed fee for each withdrawal. While others take a percentage of the pension fund for continuing management, and a few charge a mix of the two.
Nevertheless, if you select a plan that costs a percentage of your fund, This may lead to your fee dropping over time as the size of your pension shrinks, but there is no guarantee for this.
Charges for taking money out of a pension include, but are not limited to:
- Set-up fees
- Fees on the withdrawal of a tax-free lump sum (up to 25%)
- Fees on each additional withdrawal
- Tax charges on each additional withdrawal will be charged at your usual rate of 20%, 40%, or 45%, depending on your tax threshold
- Transfer fees or exit charges (applicable if you need to move your pension pot to a new provider to set up drawdown)
- Fees for ongoing fund management
- annual administration fees, which could either be a flat fee or a percentage of your account’s value.
- platform fees
Flexible Drawdown Pension Calculator
In general, a drawdown calculator can help you figure out how much money you could get from a flexible drawdown pension.
The pension drawdown calculator is intended to assist those who plan to employ a flexible drawdown rather than an annuity to earn income in retirement. However, this is to get an accurate estimate of when your pension will expire. Nevertheless, the only information you’ll need is a rough estimate of how much your pension is worth right now, Similarly, depending on your settings, the calculator can display any of the following:
- How much money could you take out of your pension each month if you wanted it to last a given amount of time?
- If you withdraw a particular amount from your pension each month, your pension will run out at this age.
Thus, you can calculate your pension drawdown based on:
Best Flexible Drawdown Pension Provider
#1. Aegon Pension Drawdown
Aegon N.V. is a Dutch life insurance, pension, and asset management corporation, that owns and operates all of Aegon’s UK operations. Scottish Equitable was once known as Aegon, but after Aegon N.V. raised its stake in the company to 100%, Scottish Equitable was renamed Aegon in 2009.
Administration charge:
- 0.6% on the first £29,999.99
- 0.55% on £30,000-£49,999.99;
- 0.50% on £50,000–£99,999.99;Â
- 0.45% on £100,000-£249,999.99;
- 0% on sums over £250,000.
A drawdown fee of £75 per annum applies once you start taking an income from the drawdown section of your pension.
#2. AJ Bell Youinvest
AJ Bell is a writer who lives in the United States Youinvest is AJ Bell’s low-cost brand for pensions and investments. Its SIPP allows you to take money out of your pension fund directly. It is, however, subject to the following fees:
Custody charge:
- 0.25% on shares (max. £25 per quarter);
- 0.25% on funds worth £0-£25,000;
- 0.1% on funds worth £250,000–£1 million;Â
- 0.05% on funds worth £1m–£2m;Â
- 0% on funds worth over £2 million.
One-off payment of tax-free lump sum, income payment, or a small lump sum of £25
Regular income drawdown payments or regular pension lump sums: £100 per annum
#3. Alliance Trust Savings pension drawdown
Founded in 1890, this firm offers SIPPs, ISAs, and investment dealing accounts.
While you’re still saving, Alliance Trust SIPP charges are £17.50 per month (+ VAT), rising to £23.75 per month (+ VAT) after you reach the income stage (e.g. drawdown)
An extra account fee of £375 (+VAT) per year may also be applied.
#4. Ascentric
In 2006, Ascentric was founded. Royal London soon acquired a majority stake in Ascentric in 2007, and by 2014, it owned the company entirely. Their focus is on providing simple pricing and a clear and transparent company structure. There are no additional payments, and there is only a one-time platform price of $99 each year.:
- 0.3% on investments and cash up to and including £1m
- 0.1% on investments and cash from £1m–£3m
- 0.06% on investments and cash from £3m–£5m
- A minimum charge of £15 a month applies
#5.Bestinvest
In 1986, Bestinvest was established. As part of the Tilney Group, it offers execution-only investment services, including a low-cost SIPP.
- Tiered annual management charges:
– 0.3% on the first £250,000
– 0.2% on funds of £250,000–£1 million
– No charges on funds of over £1 million
- Bestinvest does not charge a fee to enter the Flexi-Access drawdown, but there is a £25 (+ VAT) fee for ad hoc pension income payments.
#6. Charles Stanley Direct
Charles Stanley is a UK investment management firm that was founded in 1792, making it one of the London Stock Exchange’s oldest companies. Its direct-to-consumer operation is known as Charles Stanley Direct.
However, when you enter the drawdown, you’ll have to pay a £180 Benefit Crystallization Event cost. There’s also a £60 payroll charge for taking annual income from the Sipp, or £30 for a single withdrawal, as well as a £120 Sipp admin charge if your Sipp has less than £30,000 in it.
Fee for the platform/product
It functions in a similar way to income tax bands in that each percentage fee is applied to distinct sums in the Sipp rather than a single percentage fee being paid to the total pension.
- Platform fees: 0.35% per annum (minimum payment of £24 and maximum payment of £240) on all stocks and shares
- 0.35% on funds worth up to £250,000; 0.2% on funds worth between £250,000-£500,000; 0.15% on funds between £500,000-£1m; 0.05% on funds between £1m and £2m; 0% on all funds worth £2m+.
- Each benefit crystallization event in drawdown will be subject to a £150 charge
- There’s a £200 charge for full withdrawal of your fund within 2 years of opening a SIPP account.
#7. Fidelity
Fidelity Worldwide was established in 1969 as the international part of Fidelity Investments, a Boston-based financial services firm. In 1980, it broke apart from Fidelity Investments.
However, if you don’t have a regular savings plan or if you do, an annual service fee of £45 or 0.35 percent applies to investments under £7,500.
- Fidelity charges 0.35 percent on amounts between £7,500 and £250,000.
- The cost is 0.2 percent for investments between £250,000 and £1 million.
- On assets worth more than £1 million, no additional service cost.
- Fidelity does not charge any fees for transferring funds from a pension to a drawdown account or withdrawing funds from a drawdown account.
#8. Aviva pension drawdown
There are no fees for setting up a drawdown or withdrawing income. The Advised Platform Sipp (dubbed ‘Pension Portfolio’ by Aviva) carries a tiered percentage fee.
It works in a similar way to income tax bands: instead of a single percentage fee paid to your whole pension, each percentage fee applies to different amounts held in the SIPP.
This is how it works:
Up to and including £29,999 – 0.40%
£30,000 to £249,999 – 0.35%
£250,000 to £399,999 – 0.25%
£400,000 and over – 0.15%
#9. Barclays Smart Investor pension drawdown
AJ Bell charges a £150 annual Sipp fee, as well as a £120 drawdown fee.
With Barclays Smart, your entire pension pot will be charged a single percentage fee by Barclays Smart Investor’s SIPP. The current rate is 0.2 percent every year.
#10. Close Brothers pension drawdown
 Fee for the platform or product
Close Brothers Sipp charges a tier-based percentage fee.
It works in a similar way to income tax bands: instead of a single percentage fee paid to your whole pension, each percentage fee applies to different amounts held in the SIPP.
It works like this:
0.25% on the first £500,000
0.20% on the next £500,000
0.10% on the next £500,000
0% above £1.5m
This is deducted every month from unit trusts and OEICs, as well as equities, investment trusts, exchange-traded funds, Gilts, and other exchange-traded instruments.
- There are annual Sipp and drawdown fees of £180.
- The annual Sipp fee is £90 if the Sipp is worth £50,000 or less.
- And there are no annual platform fees.
#12. Royal London pension drawdown
The Royal London Pension Portfolio Income Release plan has a percentage fee (1%) that is not independent of the price of the investments you select. As a result, the price for its internally managed funds and Governed Range portfolios are included in the core fee
Then, depending on how much money you have in your pension, it imposes a discount. The discount is applied to the total amount of your pension. Because there are no additional fund charges, this is a competitive choice.
Fees and charges:
£0-£34,499 = 0.10% per year, so the charge is 0.90%
£34,500-£69,099 – 0.50% per year, so the charge is 0.50%
£69,100-£206,999 – 0.55% per year, so the charge is 0.45%
£207,000-£690,999 – 0.60% per year, so the charge is 0.40%
£691,000+ – 0.65% per year, so the charge is 0.35%
Conclusion
Income drawdown is a great method that when employed allows you to get pension income when you retire while allowing your pension fund to keep on growing. It allows you to gradually withdraw your pension while you leave your money invested and take a regular income directly from the fund instead of using all the money in your pension fund to buy an annuity which you may lose.
Drawdown Pension FAQs
How many times can I drawdown from my pension?
If you have a ‘capped drawdown’ fund and want to keep it, your money will stay invested. You can keep withdrawing and paying in. Your pension provider sets the maximum amount you can take out every year. This limit will be reviewed every 3 years until you turn 75, then every year after that.
Can you have 2 drawdown pensions?
Steve Webb replies:Â You can draw down from two different pots at different times if you wish. Taking a tax-free lump sum of up to 25 percent from one shouldn’t affect your ability to take 25 percent from the second later on.
What is a pension flexibility payment lump sum?
These are lump sums you can take to cash in your whole pension pot – or just some of it, leaving the rest invested. Some people call these ‘flumps’… and HMRC calls them ‘uncrystallized funds pension lump sums’ (or UFPLS).
How long does pension drawdown take?
The time it takes to release money from pensions depends entirely on the pension type and the current timescales for your specific provider. Just after pension freedoms began in April 2015, this took a long time. Now, however, most providers are actioning clients’ requests within about 10 working days.
