Last month we asked “How can Flexible Drawdown help you?”
This month we offer some tips on choosing the right Flexible Drawdown provider.
In our experience most people wanting Flexible Drawdown require the wider investment powers of a SIPP (Self Invested Personal Pension) so in many ways the question should be: “How do I choose the right SIPP provider for Flexible Drawdown?”
We’ve previously written about the things you should consider when choosing a SIPP so what else should you think about if you plan to use Flexible Drawdown in your SIPP?
Flexible Drawdown charges
Clearly when you choose a SIPP provider charges are one of the most important factors and if you are planning to use Flexible Drawdown you need to factor in any additional charges your SIPP provider will make for the privilege of using Flexible Drawdown.
It’s fair to say that the range of charges for Flexible Drawdown varies considerably from one SIPP provider to another. Some SIPP providers make no additional charge for Flexible Drawdown, others do and some make a charge if you empty the pension fund within a set period of time.
Flexible Drawdown charges, in addition to normal Income Drawdown charges
Charge for exhausting the Flexible Drawdown fund
|IPM||£150 for each election of Flexible Drawdown||None|
|Talbot & Muir||None||£125|
Many people believe that Flexible Drawdown is expensive, our research shows that it doesn’t have to be, the table to the right shows some example of the more competitive Flexible Drawdown providers.
How long do you intend to use Flexible Drawdown?
The length of time you plan to be in Flexible Drawdown is also important to consider as some providers make an additional charge if you empty the pension within a set period of time.
Nigel Bennett, of InvestAcc says: “Flexible Drawdown has been an exciting development, and we’re pleased to see increasing numbers of investors taking advantage of it. Some clients simply want to withdraw the whole fund immediately, and others want to manage withdrawals in a tax effective way over a number of years. A good financial adviser will help structure this in the best way possible, and leave it to us to set up the plan quickly and efficiently.”
Fixed fees v percentage based fees
The majority of SIPP providers charge fixed fees, although there are a number who base their charges on a percentage of the amount you have invested.
Do your own sums, or of course we could do them for you, but we’d suggest that the larger your pension fund the more cost effective it is to use a SIPP provider who charges fixed fees rather than a percentage.
We all know that Flexible Drawdown allows you to take more income from a pension fund than it possible under Capped Drawdown, for many this will mean that their pension fund will ultimately be emptied.
Our experiences so far show that people in Flexible Drawdown use a wider range of investments, particularly SIPP deposit accounts , than other SIPP investors.
Some SIPP providers charge for each investment transaction, others don’t and simply charge a flat annual fee no matter how many different investments you hold.
Again do your own sums, again our team of SIPP specialists can do these for you, to work out whether a single charge or a fee for each investment works our better value, but do be careful of additional fees mounting up if you make multiple investments in your SIPP.
Efficient administration & experience
With more investments than usual and complete income flexibility, Flexible Drawdown has the capacity to generate a lot of paper.
When choosing which Flexible Drawdown provider to use we’d strongly suggest using one which has efficient administration; the last thing you need is a delay in payments or mistakes made on your investments. This is certainly an area we as advisers can help with, we are after all dealing with Flexible Drawdown on a daily basis, whereas this is likely to be the first time you have entered into such a contract even if you have invested via a SIPP for a number of years.
Similarly we would recommend using a Flexible Drawdown provider who is experienced in arranging such options; do you want to be a ‘guinea pig’ for your chosen SIPP provider’s new administration process for Flexible Drawdown? Probably not.
James Randall of SIPP provider IPM agrees: “IPM has offered flexible drawdown since legislation permitted in April 2011 and we see this as becoming an increasingly attractive option for clients wishing to adopt a bespoke approach to receiving their pension income.”
James contined: “Experience has taught us that clients who utilise this option do not fit into the ‘one size fits all’ model. Therefore whilst cost is an important consideration, selecting a SIPP provider that offers a tailored approach with robust administration procedures is crucial to meeting a client’s needs.”
Nigel Bennett agrees: “Experience counts for a lot with Flexible Drawdown, and we’re finding more and more people coming to us as a result of that.”
When you are looking for a Flexible Drawdown provider consider the same factors you usually would when choosing a SIPP, but also take time to consider any additional charges which might be made for Flexible Drawdown as well as the administration capability and experience of your chosen provider.