How does drawdown work?
No matter how big or small your pension pot, drawdown enables you to withdraw up to 25% of your money tax-free. You’ll also have the ability to manage the frequency and value of future withdrawals.
However, with greater flexibility comes more risk and you’ll need to calculate how long your fixed and varied income is likely to last, before considering external factors such as market performance and life expectancy.
To find out if drawdown is the right pension product for you, there are several independent drawdown tools that can help you assess how long your income could last. You can also get free and impartial guidance from government-run service Pension Wise.
How much does pension drawdown cost?
The cost of pension drawdown can vary greatly, depending on the provider you choose. Some fund managers will charge a flat-fee for each withdrawal, others may require a percentage of the pension fund for ongoing management, while a few will charge based on a combination of the two.
If you choose a plan that charges a percentage of your fund, it’s possible for this fee to decrease over time as the overall size of your pension reduces, however this is not guaranteed.
Pension drawdown charges can include, but are not limited to:
Set-up/ administration fees
Fees on the withdrawal of a tax-free lump sum (up to 25%)
Fees on each additional withdrawal
Tax charged on each additional withdrawal (this will be charged at your usual rate of 20%, 40% or 45% depending on your tax threshold*)
Transfer fees/ exit charges (applicable if you need to move your pension pot to a new provider to set-up drawdown)
Fees for ongoing fund management
*Income Tax rates 2024/25 (England, Wales and Northern Ireland)
| Income Tax Band | Your income | Income Tax rate |
|---|---|---|
| Your personal allowance | Up to £12,570 | 0% |
| Basic Rate | £12,571 - £50,270 | 20% |
| Higher Rate | £50,271 - £125,140 | 40% |
| Additional Rate | Over £125,140 | 45% |
Income Tax rates 2024/25 (Scotland)
| Income Tax Band | Your income | Income Tax rate | |
|---|---|---|---|
| Your personal allowance | Up to £12,570 | 0% | |
| Starter Rate | £12,571 - £14,876 | 19% | s |
| Scottish Basic Rate | £14,877 - £26,561 | 20% | |
| Intermediate Rate | £26,562 - £43,662 | 21% | |
| Higher rate | £43,663 - £75,000 | 42% | |
| Advanced rate | £75,001 - £125,140 | 45% | |
| Top rate | Over £125,140 | 48% |
Before committing to any product, it’s important to conduct a pension charges comparison to see which drawdown product may be best suited to your needs. You may find that different fee structures come with benefits such as access to advice or greater investment diversity. Different products may also have additional charges and penalties for early exit so it’s worth researching your options thoroughly.
Drawdown costs from PensionBee
With PensionBee’s drawdown product unlocking your pension is hassle-free, with no hidden charges. For a fair annual fee, your money will be managed and kept safe by one of the world’s biggest money managers – BlackRock, State Street Global Advisors, HSBC or Legal & General – and made available as soon as you reach the age of 55 (57 from 2028).
PensionBee charges no drawdown fees, unless you decide to make a full withdrawal of your pension within one year of your first transfer. If your pot has been with PensionBee for less than a year and you wish to withdraw it in full, then a full withdrawal fee of £150 applies. This fee will also be charged should the value of your account be less than the £150 fee at the point of withdrawal.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
Last edited: 06-04-2024
