Our Pick Of The Best Drawdown Pension Providers

Forbes Staff

Published: Nov 23, 2023, 11:27am

Kevin Pratt

Editor

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Pension drawdown is a flexible way to take income from a pension pot on retirement, rather than using the money to buy an annuity, an annuity being a product which, in return for a lump sum payment, guarantees to pay an income for life.

Under pension flexibility rules introduced in 2015, individuals have more freedom over how they use their pension pot in retirement. They can take their entire pension pot as a lump sum, subject to income tax, or enter into ‘flexible drawdown’ to withdraw money when needed.

To help individuals looking at pension options, we’ve carried out research on our pick of the best drawdown pension providers on the market, including fees, choice of investments and customer support.

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Our Pick Of The Best Drawdown Pension Providers

We researched a range of drawdown pension providers and have listed our findings below, together with a methodology explaining how we arrived at our rankings.

BEST LOW-COST PROVIDER

interactive investor

Platform fee

Flat fee of £12.99 per month for Pension Builder plan. Or additional fee of £10 per month to add a SIPP to the Investor & Super Investor plans.

Choice of investments

5 ready-made managed portfolios, 6 quick-start funds and over 40,000 shares, funds, investment trusts and ETFs

Customer experience rating (Fairer Finance)

63%

Platform fee

Flat fee of £12.99 per month for Pension Builder plan. Or additional fee of £10 per month to add a SIPP to the Investor & Super Investor plans.

Choice of investments

5 ready-made managed portfolios, 6 quick-start funds and over 40,000 shares, funds, investment trusts and ETFs

Customer experience rating (Fairer Finance)

63%

Why We Picked It

interactive investor is one of the larger platforms, with 400,000 clients. Other accounts include a general investment account, ISA and Junior ISA.

The fixed, rather than proportional, platform fee may appeal to investors with higher-value pension portfolios.

Charges a trading fee of £3.99 for funds but one of the lowest trading fees of £3.99 for UK and US shares. However, customers adding a SIPP to either the Investor or Super Investor plans can use the free monthly trade(s) for their SIPP.

Options on retirement include: tax-free cash lump-sum, flexible drawdown, UFPLS and/or purchase of an annuity.

No charge for transferring pensions in or out. No fees charged on adding funds to drawdown, taking a tax-free lump-sum, taking lump-sums under UFPLS or buying an annuity. Interest paid on cash balances.

Choice of over 40,000 investment options, including 37,000 shares and over 4,600 funds, 1,000 ETFs and 600 investment trusts. Also offers five ready-made portfolios, along with a ‘Super 60’ list of selected funds.

Good support available, including a 5-day-a-week telephone service and messaging facility.

Cash balances earn 2.00% interest (gross) up to the value of £10,000. Balances between £10,000.01 and £100,000 earn 2.75%, from £100,000.01 to £1 million it’s 3.75%, and anything over £1 million earns the top rate of 4.75%.

Overall, interactive investor may appeal to investors with higher-value pensions, as well as those looking for a wide range of options on retirement.

Pros & Cons

Flat platform fee
Low trading fee for UK & US shares
Flexible options on retirement
No transfer or drawdown fees
Good customer support

Platform fee expensive for small portfolios
Trading fee charged on funds

Typical fees

Portfolio of £100,000: £180
Portfolio of £250,000: £180

(For the Pension Builder plan)

BEST ALL-ROUND PROVIDER

AJ Bell

Platform fee

Funds (tiered): 0.25% (up to £250,000), 0.10% (£250,000 to 500,000), no charge (£500,000 plus) Shares: 0.25% (capped at £3.50 per month)

Choice of investments

9 AJ Bell managed funds, 4 ready-made portfolios and over 20,000 shares, funds, ETFs and investment trusts

Customer experience rating (Fairer Finance)

68%

Platform fee

Funds (tiered): 0.25% (up to £250,000), 0.10% (£250,000 to 500,000), no charge (£500,000 plus) Shares: 0.25% (capped at £3.50 per month)

Choice of investments

9 AJ Bell managed funds, 4 ready-made portfolios and over 20,000 shares, funds, ETFs and investment trusts

Customer experience rating (Fairer Finance)

68%

Why We Picked It

AJ Bell is a FTSE 250 company with over 440,000 clients. Other accounts include a general investment account, ISA, Lifetime ISA and Junior ISA.

Charges one of the lowest platform fees, which is also capped at £3.50 per month for shares. Charges a trading fee of £1.50 for buying funds and £5 for buying shares online (reduced to £3.50 for frequent traders).

Options on retirement include: tax-free cash lump-sum, flexible drawdown, UFPLS and/or purchase of an annuity.

No charge for transferring pensions in or out. No fees charged on adding funds to drawdown, taking a tax-free lump-sum or taking lump-sums under UFPLS. A fee of £150 (plus VAT) is charged for buying an annuity. Interest paid on cash balances.

Choice of 8,200 shares and 6,000 funds, ETFs and investment trusts. Offers nine AJ Bell funds, four ready-made portfolios and a ‘Favourite Funds’ list of around 80 selected funds.

Extensive customer support available, including a 6-day-a-week telephone service and live chat facility.

Overall, AJ Bell is an excellent all-rounder with one of the lowest platform fees for funds among the mainstream providers and a range of options on retirement .

Pros & Cons

One of lowest platform fees
Platform fee for shares capped
No transfer or drawdown fees
Flexible options on retirement
Extensive customer support

High trading fee for shares
Trading fee on funds
Fee for buying annuity

Typical fees

Portfolio of £100,000: £126
Portfolio of £250,000: £126

BEST PREMIUM PROVIDER

Hargreaves Lansdown

Platform fee

Funds (tiered): 0.45% (up to £250,000), 0.25% (£250,000 to £1 million), 0.10% (£1 million to £2 million), no charge (£2 million plus) Shares: 0.45% (capped at £200 per year)

Choice of investments

4 ready-made managed portfolios and over 13,000 shares, funds, investment trusts and ETFs

Customer experience rating (Fairer Finance)

66%

Platform fee

Funds (tiered): 0.45% (up to £250,000), 0.25% (£250,000 to £1 million), 0.10% (£1 million to £2 million), no charge (£2 million plus) Shares: 0.45% (capped at £200 per year)

Choice of investments

4 ready-made managed portfolios and over 13,000 shares, funds, investment trusts and ETFs

Customer experience rating (Fairer Finance)

66%

Why We Picked It

Hargreaves Lansdown is a FTSE 100 company with over 1.7 million clients. Other accounts include a general investment account, ISA, Lifetime ISA and Junior ISA.

Charges one of the higher platform fees (of up to 0.45%) although the platform fee for shares is capped at £200 per year. No trading fee for funds but one of the highest share trading fees of £11.95.

Choice of over 8,500 shares, nearly 5,000 funds, 1,400 ETFs and 400 investment trusts Offers four ready-made portfolios, along with a ‘Wealth Shortlist’ of over 70 selected funds. Also offers a financial advisory service.

Extensive support available, including a 6-day-a-week telephone service and secure messaging facility.

Overall, HL may be a good option for investors willing to pay for a premium service, with an excellent choice of investments and customer service.

Pros & Cons

No trading fee for funds
Platform fee for shares capped
No transfer or drawdown fees
Flexible options on retirement
Excellent customer support

High trading fee for shares
High platform fee (of up to 0.45%)

Typical fees

Portfolio of £100,000: £497
Portfolio of £250,000: £834

Fidelity

Platform fee

Shares and funds (not tiered): 0.35% (regular savings plan) or £90 (no regular savings plan) (up to £25,000), 0.35% (£7,500-£250,000), 0.20% (£250,000-£1 million), 0.20% (0.20% on first £1 million then no further charge) Cap of £90 per year on shares.

Choice of investments

Over 6,100 shares, funds, ETFs and investment trusts

Customer experience rating (Fairer Finance)

62%

Platform fee

Choice of investments

Over 6,100 shares, funds, ETFs and investment trusts

Customer experience rating (Fairer Finance)

62%

Why We Picked It

US fund giant Fidelity has 1.5 million clients in the UK and clients can trade in whole-of-market funds (not just Fidelity). Other accounts include a general trading account, ISA and Junior ISA.

Charges a mid-range share trading fee of £7.50, although there is no trading fee for funds. Unlike the other providers, the platform fee is not tiered, meaning that the lower platform fee is charged across the whole portfolio, rather than a different fee on each tier. Platform fee is capped at £90 (per year) for exchange-traded instruments such as shares and ETFs.

Choice of over 2,500 shares, 3,100 funds, 400 ETFs and 190 investment trusts. No ready-made portfolio but offers a ‘Select 50’ list of selected funds, ETFs and investment trusts. Also provides financial advisory services.

Extensive support available, including a 5-day-a-week telephone service, messaging facility and face-to-face investor centre in London.

Overall, Fidelity may appeal to investors with higher-value portfolios due to the non-tiered platform fee, but is a more expensive option for frequent share traders.

Pros & Cons

No trading fee for funds
Non-tiered platform fee
No transfer or drawdown fees
Flexible options on retirement
Excellent customer support, including face-to-face investor centre

High platform fee for smaller portfolios (up to 0.35%)
No ready-made portfolios
One of lower customer experience ratings

Typical fees

Portfolio of £100,000: £310
Portfolio of £250,000: £385

Aviva

Platform fee

Funds (tiered): 0.40% (up to £50,000), 0.35% (£50,000 to £250,000), 0.25% (£250,000 to £500,000), 0% (above £500,000). Shares and ETFs: 0.40%, capped at £120 per year

Choice of investments

5 ready-made portfolios and over 6,300 shares, funds, investment trusts and ETFs

Customer experience rating (Fairer Finance)

64%

Platform fee

Funds (tiered): 0.40% (up to £50,000), 0.35% (£50,000 to £250,000), 0.25% (£250,000 to £500,000), 0% (above £500,000). Shares and ETFs: 0.40%, capped at £120 per year

Choice of investments

5 ready-made portfolios and over 6,300 shares, funds, investment trusts and ETFs

Customer experience rating (Fairer Finance)

64%

Why We Picked It

Aviva is a FTSE 100 insurance group with over 18 million customers.

Charges a mid-range share trading fee of £7.50, although there is no trading fee for funds. One of the higher platform fees of up to 0.40% although this is only charged on the first £50,000 and capped at £120 per year for shares and ETFs.

Choice of over 800 shares, 4,700 funds, 660 ETFs and 160 investment trusts. Offers five ready-made portfolios. along with an ‘Experts’ Shortlist’ list of 85 selected funds. Also provides financial advisory services.

Can only trade online although a portfolio can be viewed on the app.

Support includes a 5-day-a-week telephone service, in addition to email.

Overall, Aviva is a good all-rounder with competitive fees and a decent range of investments.

Pros & Cons

No trading fee for funds
Platform fee for shares capped
No transfer or drawdown fees
Flexible options on retirement
Also offers annuities

One of higher platform fees (on smaller portfolios)
Limited choice of investments
Cannot trade by app

Typical fees

Portfolio of £100,000: £225
Portfolio of £250,000: £615

Bestinvest

Platform fee

Ready-made portfolios and US shares (tiered): Up to £500,000: 0.20%, £500,000 to £1 million: 0.10%, over £1 million: no charge. Other investments (tiered): Up to £250,000: 0.40%, £250,000 to £500,000: 0.20%, £500,000 to £1 million: 0.10%, over £1 million: no charge. Minimum fee of £120 per year for SIPPs

Choice of investments

19 ready-made managed portfolios and over 3,500 shares, funds, investment trusts and ETFs

Customer experience rating (Fairer Finance)

Not rated

Platform fee

Choice of investments

19 ready-made managed portfolios and over 3,500 shares, funds, investment trusts and ETFs

Customer experience rating (Fairer Finance)

Not rated

Why We Picked It

Bestinvest is owned by wealth management firm Evelyn Partners and has over 46,000 clients. Other accounts include a general trading account, ISA and Junior ISA.

Charges one of the higher platform fees for funds and non-US shares, although the platform fee is considerably lower for ready-made portfolios and US shares. Minimum platform fee of £120 per year for SIPPs.

Charges no trading fee for funds or US shares and one of the lowest UK share trading fees of £4.95.

Choice of over 1,400 shares (UK and US only), 1,500 funds, 380 ETFs and 280 investment trusts. Offers 19 ready-made portfolios, along with ‘The Best™ Funds List’ of around 120 funds, ETFs and investment trusts.

Also offers a financial advisory service including a free one-to-one coaching session.

Extensive support available, including a 6-day-a-week telephone service and live chat facility.

Overall, Bestinvest may appeal to investors wanting a low-cost, ready-made portfolio, along with financial coaching.

Pros & Cons

No trading fee for funds or US shares
Low trading fee for non-US shares
No transfer or drawdown fees
Flexible options on retirement
Free financial coaching

High platform fee (of up to 0.40%)
No cap on platform fee for shares
More limited range of investments

Typical fees

Portfolio of £100,000: £430
Portfolio of £250,000: £1,030

Methodology

To come up with our list of best drawdown pension providers, we applied four main criteria:

Do they offer a self-invested personal pension (SIPP)?
What platform, trading and drawdown fees are charged?
Is a wide range of investments from third parties offered?
Do they offer a full range of drawdown options on retirement?

We also considered other features such as whether ready-made portfolios were available, the level of customer service and customer experience scores, as determined by research agency Fairer Finance.

In addition, we checked whether the provider was authorised by the Financial Conduct Authority (FCA), the UK’s financial watchdog. Using FCA data, we also reviewed customer complaints levels.

Combining the above with editorial judgment, we arrived at our Forbes Advisor star ratings.

What assumptions did we use?

We calculated trading and platform fees based on the following assumptions:

portfolio value: £100,000 and £250,000
portfolio split: 50% funds, 50% UK shares
frequency of trading: 12 trades a year split equally between funds and UK shares.

What are the options for withdrawing funds on retirement?

There are a range of options for withdrawing funds from a pension on retirement, including ‘mix and match’ combinations. For example, individuals could use some of their pot to buy an annuity and leave the rest invested for flexible drawdown.

However, pensions are complex and individuals should seek financial advice before deciding how to access their funds. In addition, it’s worth noting that some of the options below will result in a limit to the tax-relief available on future pension contributions.

Tax treatment depends on one’s individual circumstances and may be subject to future change. The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of tax advice.

Flexi-access drawdown

Individuals can put some, or all, of their funds into drawdown, with no limit on how much or little money is withdrawn each year, subject to income tax. This is a flexible option as funds remain invested and used to provide an income as and when needed.

There is also the option to take a tax-free lump sum of 25% when the funds are put into drawdown, with remaining drawdown payments being taxed as income.

Lump sum payment (UFPLS)

Individuals can withdraw money from their pension pot without having to buy an annuity or put their money into drawdown. This is called an ‘uncrystallised funds pension lump sum’ (UFPLS).

Individuals can take a number of UFPLS payments, either on a regular or an ad-hoc basis, and 25% of each payment will be free from income tax.

Lifetime annuity

Individuals can use some, or all, of their pension pot to buy an annuity, which provides a regular, guaranteed annual income. It is also possible to take a tax-free lump sum of up to 25% of the pension pot at the same time as buying the annuity.

There are various different options available, including a fixed or increasing income, monthly or yearly payments and guaranteed minimum payment periods (e.g. if you die within the first 30 years). There is also the option to continue payments to a dependent on your death.

However, annuity rates have been on a downward trend over the last 30 years, principally due to rising life expectancy and a sustained period of low interest rates.

As a result, less than 10% of retirees have chosen to buy an annuity in the last four years, according to the recent FCA’s Financial Lives survey. That said, annuity rates have started to rise again, recently hitting their highest level in 14 years.

What is a SIPP?

A self-invested personal pension (SIPP) is a pension ‘wrapper’ that allows individuals to build up a pot of money for retirement.

It’s a type of personal pension which can give more flexibility over the types of investments than a standard pension, which tends to offer a set of pre-selected funds.

Frequently Asked Questions (FAQs)

What are the benefits of a SIPP?

• Any UK resident under 75 can open one, irrespective of whether they also have a workplace or other private pension scheme.

• SIPPs can be used to consolidate other pensions in one place.

• Individuals receive tax relief on their pension contributions, usually at least 20%, and up to the highest rate of income tax paid (subject to certain limits).

• Individuals have the flexibility to choose their own investments, such as shares and funds, rather than being limited to a set of pre-selected investments.

• Investments held in SIPPs are free from income and capital gains tax (while they remain within the SIPP).

• Up to 25% of the SIPP can usually be withdrawn as a tax-free lump sum.

• Investors can often hold their SIPP with the same provider as their ISA and general investment account, which may be easier to manage.

What are the drawbacks of a SIPP?

• Fees are charged on SIPPs, which can vary significantly between providers.

• Not all individuals have the financial expertise to choose their own investments and, as with other investments, they may lose some, or all, of their money.

• The money can’t be accessed until 55 (rising to 57 by 2028), unlike other forms of tax-efficient investments such as an Individual Savings Accounts (ISAs).

• After taking the 25% tax-free lump sum, individuals will typically have to pay income tax on withdrawals from the SIPP (above their personal allowance).

• The lifetime allowance may be reinstated in the future, meaning that individuals are taxed on any excess above this amount.

How much can be paid into a SIPP each year?

Individuals can pay 100% of their earnings into a SIPP each tax year, subject to the annual allowance (£60,000 in the 2023/24 tax year).

There is a tapering of the annual allowance for people earning over £200,000 a year. The annual allowance is reduced by £1 for every £2 of ‘adjusted income’ (which includes bonuses and employer pension contributions) above £260,000, subject to a minimum allowance of £10,000.

However, individuals also have the option to carry forward unused annual allowances from the last three tax years, subject to certain conditions. This can allow them to receive tax relief on pension contributions that exceed the annual allowance.

Tax-relief will be received on pension contributions, depending on the highest rate of income tax paid by an individual:

• Basic-rate (20%) tax-payers would need to contribute £8,000 to make an overall contribution of £10,000 to their pension, with the government topping up their contribution by £2,000.

• Higher-rate (40%) tax-payers would only need to contribute £6,000, with the government topping-up their contribution by £4,000.

• Additional-rate (45%) tax-payers would need to contribute £5,500, with the government contributing £4,500.

Basic-rate tax relief is claimed by the pension provider and automatically added to the pension. Higher-rate tax-payers will have to claim the additional tax-relief through their annual return or by contacting their tax office.

Non tax-payers are also able to receive basic-rate tax-relief on SIPP contributions. They can make SIPP contributions of up to £2,880 a year, which the government tops up to £3,600. Children can benefit from the same tax-relief on contributions into Junior SIPPs.

What fees are charged on SIPPs?

There are various types of fees charged by SIPP providers:

Trading fee

This is a flat fee charged by the SIPP provider when individuals buy or sell investments. Some SIPP providers do not charge for trading shares, while others charge a fee of £5 to £10 per share trade. Many SIPP providers do not charge for buying or selling funds.

Platform fee

This is an annual fee charged for holding the shares and funds in the SIPP. Some providers charge no fee for this, others charge a flat fee and some charge a percentage, typically 0.25% to 0.45%, of the value of a portfolio.

It’s also worth looking at the types of investments that incur a platform fee as some providers charge for holding funds, but not for shares. Where a platform fee is charged for holding shares, this is sometimes capped at a maximum amount, generally around £100-200 per year.

There are two types of percentage-based platform fees:

• Tiered fee: this is the most usual type of platform fee, whereby individuals pay different fees on different ‘slices’ of a portfolio. For example, for a portfolio worth £400,000, individuals might pay 0.45% on the first £250,000, then 0.25% on the next £150,000.

• Non-tiered fee: only one of the providers (Fidelity) charges a non-tiered fee, whereby the same fee is paid across the whole portfolio. For example, with a portfolio of £400,000, 0.2% is applied to the whole £400,000.

Investment fee

This is charged by the manager of the underlying investment for funds, investment trusts and exchange-traded funds.

Actively-managed funds typically charge an annual management fee of 0.5% to 1.0%, compared to 0.1% to 0.3% for passively-managed (tracker-type) funds.

Drawdown fees

Most of the providers on our list do not charge fees for adding funds to drawdown, taking a tax-free lump-sum, taking lump-sums under UFPLS or buying an annuity.

However, some providers may charge upwards of £50 to £100 for these options.

Other fees

Some of the providers charge other fees, including fees for transferring SIPPs between providers and fees for trading by telephone.

For individuals who buy or sell shares denominated in a currency other than pounds sterling, nearly all of the providers charge a foreign exchange fee. This is also referred to as a foreign currency conversion fee and typically varies from 0.5% to 1.5%. Some providers also charge a higher trading fee for overseas shares.

How can a SIPP be opened?

Most of the SIPPs offered by the mainstream providers can be opened online or over the phone.

However, individuals with a limited understanding of the stock market should consider consulting an independent financial advisor before opening a product of this sort. Bear in mind that advisors will charge a fee for their services, which they should disclose upfront.

What’s a ‘defined contribution’ scheme?

A SIPP is a type of ‘defined contribution’ scheme, meaning that individuals build up a pot of money which they can choose to take in various ways on retirement.

This differs from a ‘defined benefit’ or ‘final salary’ scheme which pays out an annual income on retirement. Many of these schemes have been phased out by employers over the last decade.

Can cash be held in SIPPs?

Yes. Individuals may hold cash in their SIPP when they want to use their annual allowance in a tax year but wait to invest the cash at a later point. All of our featured providers pay interest on uninvested cash held in SIPPs.

Can other pensions be transferred into SIPPs?

Other pensions can typically be transferred into SIPPs (as with ISAs). However, individuals should check with their existing provider that they will not be losing any valuable benefits or guarantees and the cost of any exit fees.

Additional rules apply for the transfer of certain ‘final salary’ or ‘defined benefit’ schemes into a SIPP, whereby advice must first be sought from a qualified financial advisor.

However, pensions are a complex area and it’s worth seeking financial advice before deciding to make any transfers into a SIPP.

Is inheritance tax paid on SIPPs?

On an individual’s death, the SIPP can typically be passed to their beneficiaries (usually a spouse or children) without paying inheritance tax.

If the individual dies before 75, withdrawals by the beneficiaries will usually be tax-free. However, if they are 75 or older, any withdrawals will be taxed as their income.

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Jo Groves Forbes Staff

Having worked in investment banking for over 20 years, I have turned my skills and experience to writing about all areas of personal finance. My aim is to help people develop the confidence and knowledge to take control of their own finances.