In this article, we explain the costs and fees associated with pension drawdown and provide a simple comparison of the top 3 cheapest pension drawdown providers for pension pots worth £75,000, £100,000, £250,000 and £500,000.
What is pension drawdown?
Pension drawdown (sometimes referred to as 'Income drawdown') is becoming increasingly popular as it allows you to draw an income from your retirement savings while keeping the bulk of your savings invested in the markets, usually via a Self Invested Personal Pension (a SIPP), so that it can keep growing. We explain pension drawdown in more detail in our article 'What is pension drawdown & how does it work'.
Investment pathways
In February 2021, the Financial Conduct Authority (FCA) implemented 'Investment Pathways', which offer four simple and clearly defined default options for non-advised customers in the retirement drawdown phase.
The four investment pathway options are as follows:
- Option 1 - For those who have no plans to touch my money
- Option 2 - For those who plan to use their money to set up a guaranteed income (annuity)
- Option 3 - For those who plan to start taking money as a long-term income
- Option 4 - For those who plan to take out all of their money
All four options should be presented to you by your provider with an associated investment fund specifically chosen by the provider on your behalf. The fees for each of these options are likely to vary depending on the providers and so do not form part of the costs referenced later in this article.
How do pension drawdown fees work?
Pension drawdown in itself is relatively straightforward. The biggest barrier that exists when comparing pension drawdown providers, however, is understanding the true cost as each provider has its own charging structure.
Pension drawdown fees can be incurred in the following ways:
- Initial set-up fee
- Annual administration charges
- Platform charges
- Trading fees (if dealing in funds and shares)
- Charges on investments you select in your drawdown pension plan
To complicate matters, providers do not stick to one specific charging structure and so while some may charge a flat fee, others may charge a fee based on a percentage of your overall pot. Where it gets even more complex is when providers charge a different fee for different bands (similar to how income tax is calculated) depending on the size of your pot. It is this complex charging structure that makes it difficult to compare providers.
Which is the cheapest pension drawdown provider?
Deciding what to do with your pension is likely to be one of the biggest financial decisions you will ever make and so you should consider seeking independent financial advice. For help choosing a reputable financial adviser, read our guide - 10 tips on how to find a good financial adviser.
The best SIPP for pension drawdown depends on the size of your pension pot. Below we have highlighted the top 3 cheapest pension drawdown providers for pension pots worth £75k, £100k, £250k and £500k. The total cost column is based on the associated platform fees which include any SIPP fees and drawdown fees, however, it does not include fund costs or charges for fund switches.
Top 3 - Cheapest pension drawdown providers for pensions worth £75k
| Company | Need Advice? | Annual SIPP fee | Annual drawdown fee | Platform Fee | Total Cost |
| Vanguard | No | £0 | £0 | 0.15% | £113 |
| Interactive Investor* | No | £156 | £0 | 0.00% | £156 |
| AJ Bell* | No | £0 | £0 | 0.25% | £188 |
Top 3 - Cheapest pension drawdown providers for pensions worth £100k
| Company | Need Advice? | Annual SIPP fee | Annual drawdown fee | Platform Fee | Total Cost |
| Vanguard | No | £0 | £0 | 0.15% | £150 |
| Interactive Investor* | No | £156 | £0 | 0.00% | £156 |
| AJ Bell* | No | £0 | £0 | 0.25% | £250 |
Top 3 - Cheapest pension drawdown providers for pensions worth £250k
| Company | Need Advice? | Annual SIPP fee | Annual drawdown fee | Platform Fee | Total Cost |
| Interactive Investor* | No | £156 | £0 | 0.00% | £156 |
| Halifax | No | £180 | £180 (£300 after age 75) | 0.00% | £360 |
| Vanguard | No | £0 | £0 | 0.15% | £375 |
Top 3 - Cheapest pension drawdown providers for pensions worth £500k
| Company | Need Advice? | Annual SIPP fee | Annual drawdown fee | Platform Fee | Total Cost |
| Interactive Investor* | No | £156 | £0 | 0.00% | £156 |
| Halifax | No | £180 | £180 (£300 after age 75) | 0.00% | £360 |
| Vanguard | No | £0 | £0 | 0.15% | £375 |
What are the alternatives to pension drawdown?
Pension drawdown is just one of your options when it comes to retirement and so it is worth considering all of the alternatives. Your main options are:
- Take small cash sums
- Withdraw your whole pension in one go
- Buy an annuity
- Pension drawdown
- Mix of the above
- Do nothing and leave your pension pot invested
For more information, read our article 'What are my pension options at retirement?'
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