Shop around before you drawdown

Shop around before you drawdown: your current pension provider might not be your best option.

Once you approach retirement age, a key decision to make is how to make use of your pension drawdown. However, your current pension provider may not be offering you the best drawdown deal – and this could be costing you money. Here are three key questions to consider, to help you decide whether your current pension provider is best for you.

What are the fees?

Pension fees are probably the most frustrating part when looking at drawdown and flexi-access drawdown. Your pension provider will have charged a management fee as you held a personal pension with them, and once you retire it they could charge you to withdraw! Different providers charge different amounts for pension withdrawal, and this can add up to a significant chunk of your investment funds. If you are planning to make lots of small withdrawals, then the fees could quickly add up. The lower the fee, the more money for you.

How do you withdraw?

As so many of us manage our money online, it may be surprising to learn that some pension providers do not offer online withdrawal. You may need to phone up in order to make a pension withdrawal, making the process inconvenient and time-consuming. If you have multiple pensions you could consider pension consolidation. A popular reason for this is convenience, as it is much easier to keep track of your pension performance and funds available to you if you only have a single pension fund to monitor. Finally, it’s worth remembering that some old pension policies may not offer drawdown – the only option is to buy an annuity. Although an annuity might suit some people (see our blog for what to think about), it doesn’t offer you the advantages of drawdown.

How is your money invested?

Unlike an annuity, with pension drawdown your funds remain invested. This is potentially good news, as your pension fund could grow. However, the value of any investment can go down as well as up. This means that if your pension performance takes a downturn, it could shrink rather than grow – and the worst-case situation is that you will run out of money. As our guide to pension drawdown explains, you need to make sure your money is invested in a way you are comfortable with. Like other investments, a personal pension can be invested in different funds. If you are comfortable with a higher risk investment, then this is your decision (although we recommend talking through high risk investments with an independent financial adviser who is authorised and regulated by the financial conduct authority like us at Pension Works).

Pension drawdown is increasingly popular these days. Many people are attracted by the freedom to withdraw as much as you like and when you like, and for the potential for the investment to keep growing throughout retirement. However, you need to research this carefully as part of your retirement plans. Have a look at our resources on Pension Drawdown here – or, even better, get in touch with one of our team.

To get free, independent financial advice on income drawdown, contact us today on 0808 164 2664. Or, to find out more about Pension Works, click here.