How to find the best pension drawdown provider

Choosing the wrong pension drawdown provider to access your pot could wipe thousands of pounds off your savings.

Drawdown is where you convert your pension savings to an account which allows you to draw a pension income directly from it – and the rest of the money stays invested to (hopefully) continue growing.

Charges for running the drawdown account differ between providers, however, which means that one income drawdown customer could pay thousands of pounds more in fees than another for running exactly the same portfolio.

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In the same way most people compare car insurance or broadband deals to get the best price, it’s also important to shop around for the best value pension drawdown provider.

According to a study by investment platform Hargreaves Lansdown, almost four in ten pensioners have retirement regrets with one of the main grievances being that they hadn’t understood the different retirement options.

Indeed, many people don’t realise that they are not required to choose their pension provider as their income drawdown provider. The rules allow you to enter a drawdown scheme with any provider that offers one.

When it comes to finding the best value drawdown plan, the government-backed MoneyHelper’s price-comparison service might help. It enables savers considering drawdown plans to compare the cost of schemes available. At the last count it had helped over 50,000 since launching in 2021.

However, the MoneyHelper tool is limited in its search as it only covers drawdown providers taking part in the FCA’s investment pathways initiative, under which savers are offered ready-made investment funds according to a basic assessment of their circumstances and risk. This means that it doesn’t compare all the providers on the market – just a select panel.

How to compare pension drawdown plans and charges

In research published in 2022, consumer group Which? found that the difference in growth between the cheapest and most expensive drawdown plans for a £260,000 pension pot was nearly £18,000 over a 20-year period.

Yet when the time comes for you to look for the best drawdown offering, it’s not just cost that you should consider. While comparing charges is important, you should also look at other factors.

Customer service

When making your choice you’ll also want to factor in how easy the provider’s website is to use and the quality of customer service it offers.

There are those that pride themselves on a high standard of customer service and will most likely charge higher fees for doing so. But if that’s important to you then you might be willing to pay a little more.

Range of investments

Check what range of investments are available to drawdown customers. After all, you want your pension to last as long as you need it to and so how it is invested is crucial.

Having a wide range of investment options – from funds and investment trusts to direct shares and alternatives – can help you construct the type of portfolio you believe will serve you well.

Reputation

Look at customer reviews on a provider you like the look of to find out what existing customers think.

Support and advice

Many providers offer customers access to free guides, analysis and calculators for you to use when making your investment selection.

See what’s on offer from your shortlist of providers. However, none of the information is personalised guidance or advice about how you should invest your money.

If you feel like the task is too overwhelming – or you just don’t have the time to devote to finding the best provider – it’s worth considering enlisting the help of a financial adviser who can do this research on your behalf.

An adviser will charge a fee but it might be worth it if it means getting the right tailored retirement plan in place. You can find an adviser in your area at unbiased.co.uk.

Combining drawdown with an annuity

The choice for those approaching retirement is usually presented as binary: you can either use pension funds to buy an annuity offering a guaranteed income for life, or you can take out a drawdown plan.

Increasingly, however, financial advisers are arguing in favour of a hybrid approach that combines the two, something that is entirely in line with pension rules.

The idea is simply that you use part of your pension funds to buy an annuity income that covers basic living expenses in retirement to guarantees your financial security.

The rest of the fund is then moved into a drawdown arrangement and invested. You can draw income as and when you need it – for big-ticket purchases or travel, perhaps – but the rest of the fund remains invested, hopefully appreciating over time, and remaining available to beneficiaries.

Other 'hybrid' drawdown and annuity strategies include:

• Fixed-term annuity until state pension age. This can provide a guaranteed income for a set period, normally between three and 20 years, after which you decide whether to buy a different type of annuity or take a variable income or a lump sum from the amount returned to you.
• Drawdown first and annuity in later life. This allows you to wait to see if annuity rates improve, and potentially take advantage of better rates if your health deteriorates as you grow older.

These approaches clearly only suit savers with larger pension funds – enough to pay for an annuity to cover the basics and have cash left over. But they are becoming increasingly popular among pension savers.