Pension fees: cheapest & most expensive pension providers for drawdown

If you want to be able to tap into your pension pot during retirement through drawdown, understanding the different charges is crucial.

It’s no secret that the introduction of the pension freedoms radically changed the options available to those approaching, and in, retirement.

Rather than convert their pension pot into an annuity immediately, plenty of older people are choosing to keep large chunks of that pot invested, drawing down funds as and when they need them.

This obviously comes with additional risks ‒ depending on what your money is invested in, any stock market volatility could damage how much cash you have to cover the costs of your retirement.

But another concern is the charges that you’ll face for having the drawdown option.

And new research by consultants The Lang Cat, commissioned by Scottish Widows, casts light on just how sharply different those charges can be depending on your choice of provider and the size of your pension pot.

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A wide variety of charging structures

In putting together the study, the lang cat built a large ‒ though not exhaustive ‒ list of providers to compare. 

This doesn’t just highlight the range of options open to savers though ‒ it also makes clear the wide variety of charging structures employed by these providers, which as the authors note “ isn’t helpful for comparison purposes”.

For example, while all of the providers covered operate a percentage-based core charge, the other charges that savers face come in all shapes and sizes.

Some have a fixed pension fee on top, others have stepped core charges with further fees for drawing down cash, while one (Royal London) applies a one-off drawdown fee.

Heading into retirement

Let’s start by looking at how the various providers compare for savers prior to retiring. On average savers face a core charge of 0.45% for pots of £50,000, though this charge falls as the pot gets larger.

For example, a £75,000 pot comes with a typical charge 0.42%, dropping to 0.39% for pots of £100,000.

That’s just the average though ‒ the actual core fees levied by different providers varies hugely.

LV= stands out, charging a flat 0.25% on pots of up to £500,000, dropping to 0.10% above that point. Scottish Widows also performs well, with fees of 0.3% on pots of up to £150,000, dropping to 0.25% on pots of £250,000.

AJ Bell Investcentre stands out as a steep option for small pots, levying charges of 0.68% on pots of £50,000, though this does fall notably as the pot gets bigger, from 0.52% for £75,000 pots to 0.2% for pots of £500,000.

Transact is also a costly choice, with a fee of 0.66% for £50,000 pots, falling to 0.52% for £75,000 pots.

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How charges change in retirement

Once you’re into retirement and starting to access your pension pot, then there is a chance there will be further charges to deal with. Four of the providers the lang cat looked at do so: ARC, AJ Bell Investcentre, LV= and Royal London. 

While there is only a relatively small shift in the market average charged, increasing to 0.53%, LV=’s position worsens considerably, meaning savers with a £50,000 pot would now face annual charges of 0.6%.

Scottish Widows comes out on top across all the portfolio sizes assessed, thanks to the fact that it doesn’t charge a drawdown fee, while it’s worth noting Funds Network (0.34%) and Ascentric (0.36%) also offer excellent value for pots of £50,000.

It’s worth noting that once the pension pot moves to £250,000 in size, AJ Bell becomes far more competitive, with annual fees of 0.26%, just 0.01% more than Scottish Widows. Aegon and LV= also offer close competition at higher pension pot sizes.

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There’s more to picking a provider than price alone

Obviously having a good idea of just how much your chosen pension provider is going to be charging you, both before and during retirement, is hugely important.

But it can’t be the only consideration here.

Different providers may offer different forms of investment through your pot ‒ you may find it better to go for a slightly pricier proposition in order to keep your money in an asset that you feel more comfortable about, than going for the outright cheapest deal.

Similarly, if you want to make use of the various tools and functionality offered by platforms, then they may come with a higher cost than the no-frills options. It’s really down to you, or your financial adviser, to determine which ones best meet your needs.

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