Pension Drawdown Charges

All You Need to Know About Pension Drawdown Charges

When cashing in your pension money, you’ll need to know about drawdown charges on your income.
Pension Drawdown Charges

Think about this for a moment:

Income drawdown gives those who are close to retiring a lot of flexibility to access their pension. Income drawdown allows those to access their money when they want and however much they need. The cost of pension drawdown depends on your pension provider, and it varies. (Check out all the fees before choosing a provider

How Exactly Does Drawdown Work?

Whether you have a small pension or a large pension, it doesn’t make a difference. You’ll still be able to cash out 25% without having to pay tax. All thanks to drawdown! Best of all, you can manage how often you’d like to withdraw and how much you’d like in the future.

As you might think, if there’s more flexibility, there’s always more risk involved. It’s a good idea to work out how long your funds are going to last; that is both your fixed and varied income. After that, you can look at life expectancy and market performance.

It gets better:

There are a few drawdown tools that can help you make a decision. These tools are there to work out how long your funds are going to last. Then, you’ll know if drawdown is the right option for you. Government-run services, like Pension Wise, are there to give guidance if you require some extra input.

Does Pension Drawdown Cost an Arm and a Leg

Does Pension Drawdown Cost an Arm and a Leg?

As mentioned before, pension drawdown can differ, depending on the pension provider with whom you choose to work. Some charge a set fee per withdrawal, others ask for a share of your pension fund to pay for ongoing management—a few charge based on a both.

If you choose one that takes a share of your pension, this share will decrease as time goes by, because the overall size of your funds will reduce. But not always.

How to Choose the Best Pension Drawdown Provider

Choosing the best pension drawdown provider is no easy task, with so many providers out there. This guide will help point you in the right direction to finding a provider that’s suitable for your needs and who offers competitive rates.

The first thing to consider when choosing a company is whether or not they are authorised by The Pensions Regulator (TPR). TPR have strict rules which pension companies must adhere to and can take enforcement action against any organisation that breaks them.

Secondly, it’s important to check what other services the company offers as well as their investment platforms – such as stocks and shares ISAs – so you have access every type of financial product on one platform should you need it later down the line.

How to Take Income from Pension Drawdown

How to Take Income from Pension Drawdown

Your pension pot is made up of two parts: the money that you’ve contributed to your scheme and with interest, as well as growth on investments.

Let me explain:

You can take income from a pension drawdown by either taking an annuity or cash withdrawals. You can also choose if you want to withdraw all savings at once – but this will result in a large amount of tax being taken away for one payment (taxable).

A good strategy might be to purchase part annuity, then use some of your capital sum annually via regular payments or lump sums – which means when it comes time for retirement you still have some assets left over even after the costs are deducted from any withdrawal.

Use Pension Drawdown Calculator

To confirm how much you can take out and to work out how much income you can take without impacting on the long-term sustainability of your pension pot.

What Does Pension Drawdown Charges Include

What Does Pension Drawdown Charges Include:

  • Admin fees or set-up fees
  • When a tax-free lump-sum withdrawal is made (up to 25%)
  • Additional withdrawal fees
  • Additional withdrawal tax (this will be charged according to your tax threshold*)
  • Exit fees or transfer fees (meaning if you have to move to a new provider if you’re setting up drawdown)
  • Ongoing fund management fees

However, it’s not limited to these listed above.

Income Tax rates 2020-2021 (England, Wales, and Northern Ireland)

Income Tax BandYour incomeIncome Tax rate
Your allowanceUp to £12,5000%
Basic Rate£12,501 – £50,00020%
Higher Rate£50,001 – £150,00040%
Additional RateOver £150,00045%

Income Tax rates 2020-2021 (Scotland)

Income Tax BandYour incomeIncome Tax rate
Your allowanceUp to £12,5000%
Starter Rate£12,501 – £14,58519%
Scottish Basic Rate£14,586 – £25,15820%
Intermediate Rate£25,159 – £43,43021%
Higher rate£43,431 – £150,00041%
Top ratedOver £150,00046%

Always remember:

Before committing to any product, it’s essential to compare pension charges so that you can see which drawdown product is the best option for you. Some fee structures have benefits: advice or more investment diversity. Other products may also have additional charges and penalties for an early exit, so it’s worth researching your options thoroughly.

Common Questions

What Are Drawdown Fees?

Is Drawdown A Good Idea?

What's An Income Drawdown Plan?

How Many Times can I Drawdown From My Pension?

Conclusively

If you wish to go with an income drawdown pension, you’ll have lots of freedom to do whatever you like with your funds! You can withdraw funds at any time and as much as you need! Retiring doesn’t have to be tiring.

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