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Pension freedoms: what will it cost to withdraw your pot?

Pension freedoms: what will it cost to withdraw your pot?

If you want to cash in your pension, what fees will you pay?

Cliff D'Arcy

Investing and pensions

Cliff D'Arcy
Updated on 7 April 2015

With the pension freedom changes now in force, over-55s across the nation have the chance to withdraw as much cash from their pensions as they wish, as often as they wish.

For a full guide, check out Pension freedom changes: all you need to know.

However, how much will it cost you to exercise this newfound freedom?

Pensions: A forest of fees

Many pension investors face a bewildering array of upfront and ongoing fees - including initial and exit charges, product/wrapper/platform fees, dealing commissions, quarterly or yearly admin fees, plus withdrawal, transfer and exit costs. What's more, several providers are introducing new fees for cashing out of pensions.

So deciding which low-cost pension is best for your particular needs and circumstances will take a fair amount of number-crunching. It all depends on, for example, the investments you hold (cash, shares, funds and so on), how often you trade, the size of your portfolio, and how and when you plan to dip into your pot.

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The cost of cashing out varies widely

Let's review the withdrawal fees levied by the best-known providers. This next section lists the annual management charges and fees for flexible drawdown and withdrawals charged by major pension providers (all fees include VAT; list sorted in A-Z order):

Aegon

  • Annual management charge: Up to 0.3%
  • Yearly cost of flexible drawdown: £75
  • Additional withdrawal costs: None

AJ Bell Youinvest

  • Annual management charge: Custody charge of £20-£100 a year, plus funds fee of 0.2% a year (maximum £200 a year)
  • Yearly cost of flexible drawdown: £60 without regular payments, £120 with regular payments
  • Additional withdrawal costs: £30 for one-off payments

Alliance Trust Savings

  • Annual management charge: £186
  • Yearly cost of flexible drawdown: £300 set-up fee, plus £90 a year
  • Additional withdrawal costs: £48 per additional withdrawal

Aviva

  • Annual management charge: 0.1% to 0.4%
  • Yearly cost of flexible drawdown: None
  • Additional withdrawal costs:  None

Barclays Stockbrokers

  • Annual management charge: £186
  • Yearly cost of flexible drawdown: £90 one-off fee, plus £120 a year
  • Additional withdrawal costs: None

Bestinvest

  • Annual management charge: From 0.3%
  • Yearly cost of flexible drawdown: None
  • Additional withdrawal costs: None

Charles Stanley Direct

  • Annual management charge: £120
  • Yearly cost of flexible drawdown: £300 set-up fee, plus £60 annual payroll fee
  • Additional withdrawal costs: £30 per irregular payment, £12 to alter payment amount or frequency

Chelsea Financial Services

  • Annual management charge: 0.15% to 0.6%
  • Yearly cost of flexible drawdown: £120 set-up fee, plus £144 a year
  • Additional withdrawal costs: None

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Fidelity Personal Investing

  • Annual management charge: 0.2% to 0.35%
  • Yearly cost of flexible drawdown: None
  • Additional withdrawal costs: None

Friends Life

  • Annual management charge: 0.45% on the first £50,000
  • Yearly cost of flexible drawdown: None
  • Additional withdrawal costs: Four free withdrawals, then £20 each

Halifax Share Dealing

  • Annual management charge: £90 (for pots valued up to £50,000) or £180 (£50,000+)
  • Yearly cost of flexible drawdown: £180 to age 75, £300 from age 75 onwards, plus £90 set-up fee
  • Additional withdrawal costs: £90 when closing your SIPP through flexible drawdown

Hargreaves Lansdown

  • Annual management charge: 0.1% to 0.45%
  • Yearly cost of flexible drawdown: None
  • Additional withdrawal costs: None

Interactive Investor

  • Annual management charge: £92
  • Yearly cost of flexible drawdown: £204 (for up to two regular withdrawals per month)
  • Additional withdrawal costs: None

iWeb

  • Annual management charge: £90 (for pots valued up to £50,000) or £180 (£50,000+)
  • Yearly cost of flexible drawdown: £180 to age 75, £300 from age 75 onwards, plus £90 set-up fee
  • Additional withdrawal costs: £90 when closing your SIPP through flexible drawdown

Legal & General

  • Annual management charge: 0.35%
  • Yearly cost of flexible drawdown: £50 initial set-up fee
  • Additional withdrawal costs: No additional charges

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LV=

  • Annual management charge: £150
  • Yearly cost of flexible drawdown: None
  • Additional withdrawal costs: None

Prudential

  • Annual management charge: 0.75% to 1.5%
  • Yearly cost of flexible drawdown: None
  • Additional withdrawal costs: None, for payments of £1,000+

Royal London

  • Annual management charge: 0.35% to 0.9%
  • Yearly cost of flexible drawdown: £184 initial set-up fee
  • Additional withdrawal costs: First free, then one-off fee of £184 (each withdrawal must be £500+)

Scottish Widows

  • Annual management charge: 0.15% to 0.7%
  • Yearly cost of flexible drawdown: 0.2%
  • Additional withdrawal costs: None

Standard Life

  • Annual management charge: Varies, mostly around 1%
  • Yearly cost of flexible drawdown: None
  • Additional withdrawal costs: None

TD Direct

  • Annual management charge: 0.6%, minimum £96, maximum £240
  • Yearly cost of flexible drawdown: £180 to age 75, £300 from age 75 onwards
  • Additional withdrawal costs: £90 per additional withdrawal, plus £90 when closing your SIPP through flexible drawdown

The Share Centre

  • Annual management charge: £172.80
  • Yearly cost of flexible drawdown: £270 set-up fee
  • Additional withdrawal costs: Pension income payment fee of £234 a year

Trustnet Direct

  • Annual management charge: £96, plus 0.25% (minimum £24, maximum £240)
  • Yearly cost of flexible drawdown: £300 set-up fee, plus £150 a year
  • Additional withdrawal costs: None

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Zurich

  • Annual management charge: 0.22% to 0.35%
  • Yearly cost of flexible drawdown: None
  • Additional withdrawal costs: None

Watch out for high charges and unexpected tax bills

[SPOTLIGHT]As you can see, using your pension pot like a cash machine can cost you nothing in fees at some pension providers, while others will charge hundreds (or even thousands) of pounds to allow you free access to your cash. On top of the above charges, there will be additional dealing commissions for selling shares and other assets to turn into cash.

Of course, the higher the charges, the smaller the amount left to withdraw, so it may well pay to switch pension providers before cashing out your pension. However, beware of transfer penalties when switching, as these can also be surprisingly steep.

For investors with large pension pots, opting for fixed or flat fees will likely prove cheaper than sticking with pensions charging percentage-based fees. For example, a 1% annual management charge may not sound too expensive, but it amounts to £1,000 a year on a £100,000 pot. At Aviva, which charges 0.1% a year, the yearly fee on £100,000 amounts to a mere £100.

One final warning about tax: be aware that only the first quarter (25%) of pension cash withdrawn is tax-free. So if you take out a large slice of your pension (or withdraw it all in one go), then you could be hit by a hefty tax bill. Read How to take tax-free cash from your pension to ensure that the taxman doesn't get more of your money than he should!

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