The Best Performing Drawdown Pension Providers

Interactive Investor provides a Pension Builder plan specifically designed to make pension pots more flexible and affordable. The plan costs £12.99 per month, and customers with an existing ISA or Trading Account can add a SIPP for an extra £10 a month.

Purchasing and selling shares and funds on the platform usually incurs a transaction fee of £5.99, while withdrawing funds from the pension pot comes at no additional cost.

For those who prefer to trade over the telephone, Interactive Investor imposes a £49 fee per transaction, making it more suitable for those who trade online. If there is insufficient cash in the account to cover fees, they will sell holdings in order to make up any outstanding balance but charge an additional administrative fee of £25.

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With over 460,000 customers, AJ Bell is a renowned provider of pensions and investments that has been in existence since 1995. Opening an AJ Bell self-invested personal pension (SIPP) is completely free, with investments costing as little as £1.50.

When it comes to pension drawdown, there are a few fees associated with this service. Taking a one-off payment from your tax-free lump sum or income payments will cost you £25 per drawdown fee. Meanwhile, regular drawdown payments or lump sums will incur an annual service fee of £100.

If you're investing in shares such as investment trusts, ETFs, gilts and bonds, then there will be an annual custody charge of 0.25% of the value of the shares in your account, capped at £10 per month. Funds, including unit trusts, OEICs, and structured products, have an annual custody charge of 0.25% on the first £250,000 and 0.10% on the value between £250,000 and £500,000.

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	AJ Bell Read Review	7.9	Visitajbell.co.uk	Phone, Live Chat, Email	Android, iOS	2FA, Biometrics

Since its founding in 1981, Hargreaves Lansdown has become one of the most well-known providers, offering ISAs, pensions, investments, financial advice, and share dealing services.

For pension drawdown specifically, Hargreaves Lansdown offers a fee structure based on the size of your portfolio. You will be charged 0.45% on the first £250,000 invested, 0.25% for portfolios between £250,000 and £1 million, 0.1% for those between £1 million and £2 million, and no fee for portfolios over £2 million.

The automatic reinvestment feature is also a nice addition that allows you to set up periodic reinvestments into your funds at no additional cost. This, coupled with the DIY approach, makes it a flexible option for investment-savvy pensioners.

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	Hargreaves Lansdown Read Review	8.3	Visithl.co.uk

PensionBee provides a hands-off approach to retirement planning and investing. The platform provides eight plans to choose from, making it suitable for those who want ready-made portfolios. Here are some examples:

To get started, simply enrol, and choose between initiating a new pension account or transferring over an existing one. Next, select from a range of investment plans investing in different assets with different risks and returns. Once that's done, PensionBee's team will take care of the rest, managing both pension transfers and investments.

Note: You will be charged a withdrawal fee if you withdraw all of your pension within 12 months of having a live balance. Or, if your account balance is less than £150 at the point of withdrawal.

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	Pension Bee	6.0	Visitpensionbee.com

Vanguard, one of the oldest investment and pension providers, offers a range of competitive pensions that combine the versatile DIY approach with ready-made pension plans. With Vanguard, you can choose to build your own pension portfolio or select from one of the ready-made funds.

You can build your portfolio by choosing from 38 equities, 28 bonds, one money market, three multi-asset equities, 29 ETFs, 49 mutual funds, and 17 ESG funds.

The ready-made funds are either target retirement funds or life strategy funds. The target retirement fund lets Vanguard invest your money in shares and bonds, the ratio of which is based on your retirement date. The life strategy fund is a more diversified and long-term approach suitable for those who don't plan on retiring soon.

The annual fee sits at 0.15% and is capped at £375, making it one of the lowest in the industry. There are no fees for transferring your pension, making withdrawals, or switching funds.

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	Vanguard	6.0	Visitinvestor.vanguard.com

Charles Stanley Direct is a direct-to-consumer investment management company founded in 1792, making it one of the oldest financial firms on the London Stock Exchange. Here, you can set up a SIPP with three main strategies.

• Direct Investment Service – This allows you to choose how to plan and grow your pension without financial advice from a professional. There is no minimum deposit when taking this approach.

• Bespoke Investment Service – This plan puts the investment decisions in the hands of professionals tasked with growing and managing your funds. The minimum investment is £200,000.

• Advisory Investment Services – This takes a hybrid approach, letting you get as much or as little assistance from professionals. The personalized guidance provided makes this plan beginner-friendly, and the minimum investment is £200,000.

For funds worth up to £250,000, the platform fee is 0.35%, for funds between £250,000 and £500,000, it's 0.2%, and for those between £500,000 and £1 million, it's 0.15%. Funds worth between £1 million and £2 million are subject to a 0.05% platform fee, with all funds worth over £2 million being free of charge.

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Aviva's SIPP and drawdown product can be managed through its online portfolio service, MyAviva. It offers customers a convenient way to buy and sell funds without incurring any trading charges, making the pricing structure simpler than many other products on the market. There are two ongoing charges associated with this product, a platform fee and a fund management charge.

The platform fee is tiered depending on the value of the customer's pension account. For balances up to £50,000, the fee is 0.4%, which works out as a £200 annual charge. For amounts between £50,000 and £250,000, it falls to 0.35% (£700), while for amounts above £250,000, it’s further reduced to 0.25% (£625). After £500,000, there is no additional fee charged.

There are several ways to invest in funds, such as investing in ready-made funds provided by Aviva or choosing to build your portfolio yourself. If you opt for the latter, you can build from scratch or select from Aviva’s hand-picked funds.

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Think of drawdown as a ‘pot’ or account where your pension savings are stored, which you can then access by taking regular payments out. You are able to choose how much money you want to take out and when.

To access a drawdown pension, you must meet certain eligibility requirements set by the HMRC. Generally, these include being aged 55 or over and having saved into a qualifying pension scheme. It's important to check with your provider, as different providers may have their own eligibility criteria.

There are two main types of drawdown pension: flexi-access and capped drawdown.

• Flexi-access allows you to take up to 25% of your pension pot as a tax-free lump sum, with the rest available for regular withdrawals. This is known as a 'flexible income drawdown' and comes with no limit on how much money you can take out. Here, you start by taking up to 25% of your pension as a tax-free cash lump sum up-front. Afterwards, the taxable balance is moved into a drawdown account where you can take regular withdrawals.

• Capped drawdown, on the other hand, lets you access your pension pot within certain limits. Here, the amount you can take out of your pension is restricted each year, based on your age. This can be a good option for those who want to draw an income from their pension but don’t need as much cash as flexi-access allows. The maximum amount you can take out is capped at 150% of the equivalent annuity rate.

Pros and Cons of Drawdown Pensions

Drawdown pensions offer numerous advantages. However, there are some drawbacks to consider before opting for this option.

Once you have withdrawn the 25% tax-free lump sum, withdrawals from drawdown pensions are treated as earned income and taxed in the same way as wages or salary. This means that if you take an income from your drawdown pension, you will have to pay tax on it at your marginal rate.

The amount of tax paid depends on how much money is taken out each year. For example, any withdrawals under the personal allowance of £12,570 will be tax-free. Here's a summary of the different tax bands.

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How to Avoid Paying Tax on Your Pension

In the event of your passing away (before 75 years), any money that remains in your drawdown pension will usually be inherited by your spouse or other beneficiaries. The amount of inheritance tax payable will depend on the size of the pension fund and the age at which you passed away.

If you pass away before taking all of the money out of your pension, a lump-sum death benefit will be paid to your beneficiaries. This can be withdrawn tax-free within two years, after which taxes will be charged.

However, if you die after your 75th birthday, your beneficiaries will need to pay income tax on any pensions you leave behind.

If you have a defined benefit pension (which is often linked to your salary or earnings), the fate of your pension depends on whether or not you were retired before death. If you pass away before retiring while below age 75, your pension will be paid to your beneficiaries tax-free.