Drawdown charges

zagfles

SnowMan wrote: »

Zagfles, I think there are as you say a number of ways of incorporating the figures in the platform comparison spreadsheet. We can discuss what we think is best.

At the moment I am trying to understand the figures, in the sense of what charges would actually be incurred by someone who chose say capped drawdown, and what scenarios and events would trigger the various charges in the table. Partly due to my complete ignorance of charging structures for drawdown and some of the more practical issues.

Well, I have no practical experience either (not old enough )

I am thinking we can lose some of the full list of charges columns, and make those additional charges over the main capped and flexible charges?

So we can lose the 'set up capped' and 'set up flexible' columns? Although worth renaming columns 1 and 4 from 'initial' to 'set-up'?

The way I did it was to calculate the summary columns ie the first 6 columns in your spreadsheet from the others, for instance the initial/setup columns was the sum of the 'set up capped' or 'set up flex' columns plus the 'TFLS cash' column (which happens to be zero for all - some providers said it was zero and others didn't mention it so I assumed zero).

I am not quite sure what the difference is between the 'annual capped charge' and 'annual flexible charge' in the 'full list of charges'

They are all the same - but some providers list them separately so I did 2 columns just in case any were different.

and the 'annual charge under 75' in the 'capped drawdown' and 'flexible drawdown' columns. Which other charges make up the difference?

These are calculated based on the assumptions that

• You want to take an income
• You only do GAD reviews when you have to ie every 3 years pre 75 and every year afterwards (capped only)
• When reviewed you will change the income you take (capped only)

Some providers charge an annual drawdown fee regardless, some charge an annual fee only if you take an income and some charge for the reviews either in addition to or instead....

I am also confused with where in the numbers you have incorporating the 1/3rd of the compulsory GAD charge (pre 75)? Can you give me an example of where it is incorporated?

Based on the above assumptions, the capped drawdown annual charge is the total of annual capped charge, income payment charge, plus (for under 75's) a third of the compulsory GAD and income change charges. For over 75's the full GAD & income change charge are use.

Eg take Charles Stanley, the under 75 annual charge would be the income payment charge plus a third of (GAD + income change) charges, ie 60+(120+12)/3 =104

Over 75 charge would be 60+120+12 = 192

And why is there only one 'annual charge 75+' column in the 'full list of charges' columns and yet amounts after 75 seem to vary depending on whether the drawdown is capped or flexible (looking at columns 3 and 6).

Because no GAD reviews for flexible, they only apply to capped. The flexible annual charge in the summary is just the sum of the appropriate annual charge and income payment charges (as it happens all the platforms only charge one or the other).

And I am struggling to interpret what charges apply if drawdown is taken through a tax free lump sum (but with no income) vs drawdown with a lump sum and income payments. In which figures are the 'income payments' included?

Yes, as above I've made the assumption that an income is taken. Could have made the summary more complex by accounting for people who only want the lump sum for now, but didn't think it was worth it.

I wonder if it is worth putting in some links to general information about what drawdown is into your first post. There are probably readers who don't understand the difference between capped and flexible drawdown and won't understand that for capped drawdown there are Government Actuary Department limits to ensure that capital isn't eroded, and the 3 yearly (or yearly) need to review the upper withdrawal limit.

I've had a quick google and the best guides are on the providers' sites themselves. I looked at the pensions advisory service website but it's typical of government consumer sites, just very basic information with no real detail and a "you're too stupid to understand this see a financial advisor" type attitude.

The Wiki article is quite good and is more free of jargon than usual, though it waffles a bit about the history which isn't really relevant.

http://en.wikipedia.org/wiki/Income_drawdown

TBH a lot of the stuff I read about drawdown is rubbish IMO. They talk about it being complicated, only suitable for people with large pots etc. What they don't seem to account for is those (like me) who just intend having a small'ish pot which will supplement other pensions rather than be the main pension. I use a SIPP in the way others would use an ISA.

Thanks again for your work on this I am sure forumites are going to find this useful :T

You can probably tell from my silly questions why I didn't try to undertake this task myself.

The existing spreadsheet does 90% of the work so :Tto you too!

The main problem with drawdown is (as I didn't really think about till I looked into it) there are so many options! Which is why I tried summarising charges based on assumptions...

zagfles

mania112 wrote: »

Out of interest can anything beat 0.35% + £100 per year for capped drawdown (including provider and fund)?

Well, given that people with trackers have managed to negotiate charges as low as 0.2% with HL, then a cheap tracker like this http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/l/legal-and-general-uk-100-index-class-c-accumulation

with a TER of 0.09% could give a total platform plus fund fee of 0.29% plus £34pa for drawdown!

SnowMan

Thanks again Zagfles.

I've finally caught up with you in understanding the figures.

Here is version 2.

https://drive.google.com/file/d/0BxA6Przq6KI1LVBVSGJsVHJYcU0/edit?usp=sharing

I've now included a table underneath the numbers of the formulaes that are being applied (I've labelled the columns A to Q in the vertical description wording and the formulae refer to those). The formulae in the first column of the capped and the third column of the flexible correspond to the formulae used to create your original figures (the formulae agree your figures in every case).

I am also suggesting formulae for different options e.g. drawdown with no income. I've not set those formulae up as yet. Are those formulae correct and what options would it be useful to include? The idea would be to have inputs to enable the costs to be calculated on the desired basis e.g. an input 'is drawdown cash only or cash + income?' and an input 'is income likely to change at GAD reviews?'

I've changed the colours of the full list of charges columns. I think the blue columns are those incorporated into the first 6 columns, and the pink ones are additional charges that are occurred when other events happen. I can change the order of the columns later to keep the blue and pink columns together.

I'm thinking that it might be worth separating out the flexible and capped figures into 2 tables of numbers. If you are heading for capped drawdown you don't want the flexible figures there to confuse you. What do you think?

Youinvest: should the annual capped charge, annual flexible charge and the annual charge 75+ be £60pa and the income payment and income payment 75+ charge be £60pa, to reflect that you effectively pay £60pa for the drawdown and an extra £60pa for taking an income under their charges?

not-so-civil

Many thanks to both Zagfles and Snowman. I was also caught with this. I am in capped drawdown with H&L with a £130k Portfolio in 14 Funds. No shares or etfs. Hence looking at Snowman's excel I could see I was really suffering at H&L. I then looked at the drawdown charges. For all other providers this made a dramatic change. H&L were at least competitive. Fidelity looked very good so I e mailed them to see whether or not I could transfer without their ISA advice. To date no real answer.
I found the combination of Zagfles and Snowman to be of great benefit. I will probably stay with H&L but perhaps might try for a small reduction in the 0.45%.
Once again, many thanks to you both.

Thrugelmir

Could you add X-O to the list for comparison.

not-so-civil

Further to my previous message #15, Fidelity have now replied:

In order to transfer an existing income drawdown pension into the Fidelity SIPP we will refer you to our advisory partner ‘Retire Direct’. There can however be instances where we will permit you to not seek advice through ‘Retire Direct’. Regardless of this, you will still have to discuss your particular pension with them so we can assess the waving of advice. ‘Retire Direct’ will also be able to discuss the charges in relation to income drawdown and GAD reviews.

So I think there will be some additional charges.

SnowMan

Blimey O'Riley. Considerable changes to drawdown in the budget.

zagfles

SnowMan wrote: »

Thanks again Zagfles.

I've finally caught up with you in understanding the figures.

Here is version 2.

https://drive.google.com/file/d/0BxA6Przq6KI1LVBVSGJsVHJYcU0/edit?usp=sharing

I've now included a table underneath the numbers of the formulaes that are being applied (I've labelled the columns A to Q in the vertical description wording and the formulae refer to those). The formulae in the first column of the capped and the third column of the flexible correspond to the formulae used to create your original figures (the formulae agree your figures in every case).

Looks good!

I am also suggesting formulae for different options e.g. drawdown with no income. I've not set those formulae up as yet. Are those formulae correct

Only one I'm not sure about is the "capped/cash but no income" one - as I understand it for capped you still have to do reviews even if you're not taking an income (but I'm not sure about this, anyone know?)

and what options would it be useful to include?

I think the ones you've got are more than enough - for other options people can always refer to the full data.

The idea would be to have inputs to enable the costs to be calculated on the desired basis e.g. an input 'is drawdown cash only or cash + income?' and an input 'is income likely to change at GAD reviews?'

I've changed the colours of the full list of charges columns. I think the blue columns are those incorporated into the first 6 columns, and the pink ones are additional charges that are occurred when other events happen. I can change the order of the columns later to keep the blue and pink columns together.

I'm thinking that it might be worth separating out the flexible and capped figures into 2 tables of numbers. If you are heading for capped drawdown you don't want the flexible figures there to confuse you. What do you think?

Possibly, although people who are capped may go flexible later eg when their state pension becomes payable. Plus the latest budget annoucements would seem to kill capped from 2015 - everyone will be flexible

Youinvest: should the annual capped charge, annual flexible charge and the annual charge 75+ be £60pa and the income payment and income payment 75+ charge be £60pa, to reflect that you effectively pay £60pa for the drawdown and an extra £60pa for taking an income under their charges?

Yes, sorry missed that.

zagfles

SnowMan wrote: »

Blimey O'Riley. Considerable changes to drawdown in the budget.

Yes - by the looks of it capped drawdown will be history, and everyone will be flexible! Why they're making changes for just a year to the flexible limits and small pots I don't know...

Mattygroves2

zagfles wrote: »

Yes - by the looks of it capped drawdown will be history, and everyone will be flexible! Why they're making changes for just a year to the flexible limits and small pots I don't know...

To change to fully flexible takes more complex legislation which will take time. So they've flexed the arrangements for the first year whilst they get the legislation sorted out.