Sammie Ellard-King
I’m Sammie, a money expert and business owner passionate about helping you take control of your wallet. My mission with Up the Gains is to create a safe space to help improve your finances, cut your costs and make you feel good while doing it.
Why stop growing your pension when you retire? Why not take a regular income from the fund, and at the same time let it continue to grow?
That’s the benefit of a drawdown pension.
And the good news is that there are some really good drawdown pension providers out there.
Better yet, this article is going to be reviewing 5 of the best, doing all the homework for you.
By the end of the article, you’re likely to have come across at least one you like the sound of. Here goes with our best drawdown pension providers.
Best Pension Drawdown Providers - Our Picks
Pension rules apply. Capital is at risk.
Moneyfarm
BEST OVERALL
Pension rules apply. Capital is at risk.
Wealthify
BEST FOR EASE OF USE
Disclaimer: Please note that when you invest your capital is at risk. Up the Gains accepts no responsibility for the investment decisions you make and if you are worried please seek independent financial advice before making an investment decision.
What is pension drawdown
Pension drawdown is taking an income when you retire from your pension fund whilst still allowing it to grow.
This option, when you reach retirement age, doesn’t sell all of your investments, and your pension provider works with you to allow you to take a pension income.
This way if your investments do very well then your pension pot is growing rather than decreasing.Â
Drawdown is the opposite to annuity where you buy an income using your whole pension.
Top Rated Pension Providers
Vanguard
Vanguard is a Which recommended pension provider, and they offer a Personal Pension (SIPP).
And it has earned a 5-star rating on the Times’ Money Mentor.
For those of you who don’t already know, the advantage, and disadvantage, of this type of pension is that it gives you more control over your investments.
And it’s very tax efficient – you don’t pay tax while your savings are invested, you get tax relief on your earnings, and you can pass pension savings onto your loved ones, entirely tax-free.
You can choose from a range of over 75 different funds, and they are all low cost.
You can invest up to £40,000 per year, and you can choose from building your very own investment portfolio, or picking a ready-made Target Retirement fund.
Choose the latter option, and you can effectively spread your bets so that you don’t put all your eggs in one basket.
You can start drawing an income from your pension while it continues to grow from the age of 55 soon to be 57.
What’s more, they don’t charge any additional fees when you start withdrawing your money.
And their account fee is very low at just 0.15%, capped to a maximum of £375.
Read our full review on investing with Vanguard here.
AJ Bell Youinvest
AJ Bell is also an award-winning drawdown pension provider, and a Which recommended one at that.
They offer an excellent SIPP plan, that has all the usual tax-efficiency trappings of an SIPP, and you can withdraw from it flexibly if you put it into drawdown.
For every £8,000 you contribute to your SIPP, the government pays £2,000.
There are no set-up fees to worry about, and there are no charges for transferring other SIPPs over to a single account.
The charges start at £1.50 for funds, and £9.95 for shares, and they have a pricing calculator to work out your charges.
You can choose from investments from 21 different markets and around a whopping 2,000 funds, hands down one of the widest ranges around.
Once you reach the age of 55, you can access your entire pension pot, and this includes withdrawing up to 25% as a tax-free lump sum.
It’s perfect for when you have immediate cash needs, such as paying for private health care, or buying a home away from home.
And at the same time, your pension will continue to benefit from investment income.
You will remain in complete control of what investments you keep, and you can tweak your portfolio to suit your income needs and your own appetite for risk.
Whatever remains of your pension when you pass away gets paid to your beneficiaries, all free from inheritance tax, and can be accessed either as a lump sum or as regular income.
PensionBee is one of the UK’s most well known pension providers, and it too offers a drawdown pension.
You can access your Pension retirement planner dashboard at any time on their app, which is available to download on both Apple and Android devices.
They allow you to choose from 4 goal-aligned investment pathways, depending on how you want your money released.
Their pensions are managed by big name brands such as HSBC and Legal and General.
You can access this money from the young age of 55 (57 from 2028) at which point you can take up to 25% of it as a tax-free lump sum.
There are no drawdown charges to worry about (with the exception of those who withdraw their entire pot within a year of transferring to them).
And their annual fee comes to less than 1%.
There’s nothing for you to sign because everything is handled electronically, and you can access your cash in as little as 10 days.
And if you ever need customer support, it’s always UK-based.
Interactive Investor is another very popular UK based pension provider.
It has a long-standing reputation in the industry, and it has earned a 4 and a half star rating on TrustPilot.
Their SIPP pension plan allows for drawdown, and it has all the usual tax benefits that come with SIPPs.
And you have complete control of exactly where your pension gets invested.
One of the great things about an Interactive Investor SIPP is that rather than charge a percentage fee that grows with your pension pot, instead they charge one low flat rate fee.
This starts at £12.99 per month for newcomers, or you can add an SIPP to an existing account for a mere £10 per month.
You can contribute as little as £25 a month, and buying or selling shares typically costs around £7.99 a time.
As for what to invest in, you can either choose your own investments, or choose from their four Investment Pathways.
When you reach the ripe old age of 55, you can access your pension pot, with flexible retirement options.
And unlike with many other pension providers, Interactive Investor does not charge any extra fees for this service.
The first 25% of the pot is entirely tax-free, and the remainder is taxed like normal income.
After that you can choose to set up regular withdrawals as income, or alternatively you can take out lump sums as and when you need them.
Pension Drawdown Tax Rules
Once you reach your golden years 55 (soon to be 57 in 2028) you can start looking at using your pension. To do this you will need to withdraw it, but there are rules you need to follow to ensure you pay as little tax as possible.Â
Sure, it is more than possible to just take it all but you will get hit with a tax bill. Here’s what you can do!
- Take the first 25% in a lump sum completely tax-free – if you have £300,000 in your pension that’s £75,000.
- You can also split the 25% into smaller payments – let’s say you have £50,000 – 25% of that is £12,500 and you could opt to take 1/3 of that in 3 chunks meaning you would have x3 payments of £4,166.
- The rest is subject to income tax – you have a personal tax free allowance per year but once you go over this you’ll be taxed
Income Tax on pensions
After your lump sum payment, you get into a taxable pension drawdown, and this is where your withdrawals are subject to income tax.
Your pension pot may now only be your source of guaranteed income so it’s important to know how much you can take out before you need to start paying tax.
| Tax Band | Income Range | Tax Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic Rate | £12,571 to £50,270 | 20% |
| Higher Rate | £50,271 to £150,000 | 40% |
| Additional Rate | Over £150,000 | 45% |
Of course everything will differ depending on how much of your pension you draw.
If you can live comfortably from the personal allowance then you won’t be subject to any income tax at all.
This is the time to be sensible with what you have and only draw down what you need from your retirement savings.
Don’t worry – you won’t need to complete any self-assessments your pension drawdown providers will be able to handle the tax payments for you.
The Money Purchase Annual Allowance
This is where your pension allowance goes from £40,000 to £4,000.
When you trigger your pension into income pension drawdown your contribution allowance is cut.
Essentially where you could usually contribute up to £40k and get tax relief you’ll only get it on the £4,000.
When to seek finanical advice?
If you’re still struggling with your pension and not sure what to do when it might be nearing the time to start thinking about drawing down then always seek advice from a financial advisor.Â
A lot of the best drawdown pension providers will offer financial advice in house but many don’t so you make need to look elsewhere for support.
Professional financial advisor
The Money and Pensions Advice ServiceÂ
This was set up by The Money Advice Service, The Pensions Advice Service and pension provider Pension Wise as a place where people can come to find out everything they need to know about their pension.
What is the 4% rule?
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Pros & Cons
When considering the best drawdown pension provider it’s always good to understand the pros and cons of drawing down a pension.
Pros
- Get 25% of your pension tax-free
- You can still grow your pension pot whilst drawing a pension income
- You can withdraw as much or as little as you need
- You don't need to purchase an annuity
- There's benefits for beneficaries
Cons
- Your capital is a risk
- The markets could misbehave and the value of your investments could drop
- Large withdrawals mean you pay more tax
FAQs
Is drawdown a good idea?
There is risk with a drawdown pension because the value of your investments could decrease as well as increase. It should really only be considered if you have a large pension pot that can weather a downturn in the stock market.
What is the cheapest pension provider?
The cheapest on the market right now that we can find is AJ Bell followed closely by Hargreaves Lansdown.Â
This changes though once you start buying and selling as Hargreaves Lansdown can be expensive here. AJ Bell is a clear winner.
Is drawdown better than annuity?
Drawdown has risk associated with it and the value of your investments can go up as well as down. That being said, if growing your pot to leave for inheritance purposes is your goal then yes it is generally better than annuity.Â
Annuity provides you security until your dying day. You know exactly what you have coming in and can even re-invest some of that money if you so wish.
Can I withdraw 100% of my pension in one go?
You can take out as much of your pension as you like at anytime. The first 25% is tax-free which can be taken in a lump or in smaller chunks.
The rest is subject to income tax so the less you maximise of your tax allowance the more you pay HMRC.
What is a safe drawdown rate for my pension?
A rule of thumb for pension drawdown is around 3-4% each year. If you aim for an average return rate above this, your pot will continue to increase as you draw down.Â
You may need to adjust this rate as you factor in inflation, but this should allow you to stay comfortable.
What is the best drawdown pension provider?
As a recap of best drawdown pensions, we have the following brands:
- Moneyfarm
- AJ Bell
- Wealthify
- VanguardÂ
- PensionBee
Wrap Up
So, there you have a summary of the best drawdown pension providers in the UK.
Choose wisely, and you’ll be able to live quite comfortably in your retirement. Remember once you get to retirement there are other options you can consider to help supplement income.Â
These could be things like equity release, downsizing or dipping into savings. Drawing down a personal pension is certainly the most sustainable though.
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Disclaimer: Content on this page is for informational purposes and does not constitute financial advice. Always do your own research before making a financially related decision.
