Income drawdown: watch out for ripoff charges

EdInvestor

FT report


It's even more important than usual to keep charges as low as possible when using drawdown for your pension, as high charges ratchet up the risk dramatically.

Advisers typically take a 3 per cent initial commission and an annual commission charge of about 0.5 per cent of funds under management. But some advisers take significantly more....Annual costs on income drawdown plans are typically between 1 and 2.5 per cent, depending on the cost of the plan, the investment approach you take and the level of commissions paid to your adviser.


But they can be even higher. The effect of charges was highlighted by an FT Money reader who requested a drawdown illustration from St James's Place for his 63-year-old wife who wished to invest £154,000 but not draw income until she was 75.

The reader was stunned to find that charges ranging from £74,000 to £115,000 would be deducted from his wife’s pension pot depending on whether annual returns of 5, 7 or 9 per cent were achieved. He calculated that the effect of the charges was to cut assumed growth of 7 per cent to 4.35 per cent after £90,000 in charges.

..A snapshot of the market shows that St James’s Place is near the top for its charges, with others typically front-loading with a large initial commission but with typically lower annual fees of 1-2.5 per cent, depending whether the investor is passive or active.

[Deleted User]

Doesn`t surprise me. We were quoted the top scale of charges, by an IFA, simply for setting up a pension transfer. I did it all myself without an IFA via sippdeal. It cost me very little to set up and will cost me a peanuts, relatively speaking, when vesting and drawdown commences

the charges are transparent
http://www.sippdeal.co.uk/charges.aspx

dunstonh

Going to a tied agent or multi-tie for drawdown advice is daft. You are just asking to pay higher charges and get limited advice.

The reader was stunned to find that charges ranging from £74,000 to £115,000 would be deducted from his wife’s pension pot depending on whether annual returns of 5, 7 or 9 per cent were achieved. He calculated that the effect of the charges was to cut assumed growth of 7 per cent to 4.35 per cent after £90,000 in charges.

Which is no surprise when you consider it was St James Place.

The actual reduction in yield on the 3% plus 0.5% model is virtually no different to doing it yourself.