We get dozens of enquiries from people asking about “pension drawdown” or “income drawdown”. Often they are individuals nearing retirement and want the opportunity to access their pension funds when they need to, while keeping the rest of their savings invested during retirement, and they always want to know about the costs involved.
Charges and fees on pensions with a drawdown facility can vary considerably depending on which provider you choose. This article is going to cover what costs to expect when setting up a drawdown pension, and how these fees can vary depending on your situation.
Customers often ask us this, and the answer largely boils down to the charges and fees associated with the pension in question. Read on to find out which fees and charges pension drawdown typically comes with or make an enquiry and one of the expert pensions advisors we work will break them down for you.
What pension drawdown charges and fees should I be aware of?
As mentioned, all providers will work to different terms and the associated costs could have a big impact on how much you end up paying. Typical pension drawdown charges include (but are not limited to):
Typically a standard fee
Typically a standard fee but some lenders may calculate costs based on how much you have in your pension pot.
Fee(s) on withdrawal(s) of the 25% tax-free sum
Some providers don't charge for any withdrawals of the 25% tax-free sum, others may charge a fee (set or variable) per withdrawal
Fee(s) on additional withdrawal(s) over the 25% tax-free sum
Some providers will charge a set fee per withdrawal, some may charge a percentage of the fund, others will charge based on how much you withdraw each time.
Income Tax charged on each additional withdrawal
Withdrawals outside the 25% will be added to any other income you have which could impact how much Income Tax you pay.
Fees for ongoing pension drawdown management
Some providers will charge a set fee, but many will charge a percentage of your pension funds.
Transfer fee / exit charges
Typically a standard fee.
Before committing to any product, it’s strongly advised to carry out a pension charges comparison to find out which income drawdown product is best suited to you. Make an enquiry to compare income drawdown charges with an expert.
The importance of choosing the right pension drawdown product
No matter how much you have in your pension pot, drawdown enables you to withdraw up to 25% of your money, tax-free. After that, you’ll have to pay income tax on the remaining 75%.
Problems are most likely to occur when the 25% allowance is exceeded. As well as potentially limiting how much you can pay into a pension in the future, additional withdrawals from your pension will be classified as taxable earnings.
These funds will be added to any other taxable income you have, which could potentially put you in danger of being pushed into a higher tax bracket:
Income Tax rates 2018-2019 in England, Wales and Northern Ireland*
Income Tax Band
Income Tax Rate
Up to £11,850
£11,851 - £34,500
£34,501 - £150,000
Income Tax rates 2018-2019 in Scotland*
Income Tax Band
Income Tax Rate
Up to £11,850
£11,851 - £13,850
£13,851 - £24,000
£24,001 - £43,430
£43,431 - £150,000
Further tax may also apply if the value of your pension savings exceeds £1,030,000 when you access the funds.
How do I carry out a pension drawdown charges comparison?
The best way to find a low cost pension drawdown solution is to search the entire market and compare the deals each provider is offering. This would usually mean a lot of legwork and there’s no guarantee you’d even find the pension provider offering the best products for your needs and circumstances.
With this in mind, the best way to compare products with drawdown facilities is by making an enquiry here and having the pensions expert do the hard work for you. They can offer bespoke advice on pension drawdown and know exactly which providers are best positioned to offer favourable rates to a customer with your exact circumstances.
Talk to an expert in drawdown pensions and charges today
If you require more information, or want an accurate pension drawdown charges comparison carried out on your behalf, call Online Mortgage Advisor on 0800 304 7880 or make an enquiry here.
Then sit back and let us do all the hard work in finding the low cost pension drawdown provider with the right expertise for your circumstances. We don’t charge a fee, and there’s no obligation or marks on your credit rating.
*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA.Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.
Tony has worked in a vastly diverse array of areas in the pensions industry for over 2 decades. Tony regularly writes for trade press, usually on topical and pensions pieces as well as acting as a judge at prestigious national events. Tony is also a highly qualified Independent Financial Adviser in his own right. His mantra has always been "Hope for the best, but PLAN for the worst", and believes that the biggest impact that an adviser can have on a client's life journey is to take them on a journey from generally having little or no real idea of what their retirement will look like, to giving them the understanding of what their retirement looks like now, then helping them navigate a path to what they WANT their retirement to be.