Price matters
Charges for income drawdown are just as complicated as those for Sipps. As shown in Table 2 (overleaf), costs for starting capped drawdown range from zero from several providers to £330 from Dentons and a time-costed proposition from Mattioli Woods.
But starting costs are only part of the whole equation. Some, such as Scottish Widows, take an all-in approach, where all charges are covered by the retirement account fee. Others, such as LV= and James Hay, charge on a percentage of assets. The right charging structure ultimately depends on the client’s needs.
Charges for flexible drawdown are often higher. Chase de Vere IFA, for example, charges £500 to start up flexible drawdown compared with £150 for capped. It says the higher cost is down to a greater amount of work at outset and, on an ongoing basis, there is a greater risk to the firm as trustees and administrators. Some companies instead have identical charges regardless of whether capped or flexible is chosen.
A focus on cost is rather too narrow, however. Service is absolutely key in drawdown; the whole point is flexibility and control and clients are willing to shell out for good value if they get the right service. Simply choosing the cheapest option is not the right way to find the best fit for a client.
Up and down
The reinstatement of the uplift in drawdown income to a maximum of 120 per cent of Gad from 100 per cent was met with mixed responses. On the whole, the prevailing opinion was that a higher maximum would be positive in a time of low pension income. But the decision by some providers to automatically uplift retirees’ incomes proved controversial.
Table 3 shows the approach providers took regarding the new income limits. A total of eight providers – almost 14 per cent – moved all of their customers drawing 100 per cent to the new
120 per cent limit. The majority (55 per cent) contacted their customers to tell them their options, while 29 per cent took no action, with information to be provided at or prior to the client’s review.
For those who automatically uprated clients to 120 per cent, a logic can be seen: the client opted to draw the ‘maximum’, so when the maximum changed, their limit changed.
But the majority of providers did not agree with this approach. Brian Davidson, platform proposition manager at Alliance Trust Savings, says that since income is taxed, the firm felt it was better for advisers and clients to make a conscious decision to take a higher level of income rather than make any assumptions.
