How to save a FORTUNE in fees

Don’t dip into your pot until you’ve found the cheapest pension plan

BEFORE you even think about dipping into your pot or investing the cash for income, you need to figure out where to store it.

For most people, that will mean finding a cost effective plan that lets you make withdrawals whenever you want.

Don’t make the mistake of withdrawing all the money and putting it into an Isa or a savings account — as we explain in Monday’s pullout, that’ll just land you with a giant tax bill.

Unless you have only a small pot, or intend on spending the money immediately, it’s a good idea to look into moving your fund to a socalled drawdown plan.

These do what they say on the tin: let you ‘draw down’ your pension whenever you want.

Most let you invest the remaining pot in any of thousands of different funds linked to the stock market.

You could keep a chunk in cash for withdrawals and invest the rest with the intention of using it in ten years’ time, for example.

Your existing pension provider will probably offer you a drawdown deal. You DON’T have to take their offer, which could be a rip-off.

Drawdown policies come with an array of fees and which one suits you will depend on how much you’ve got in savings.

Our table on this page shows a traffic light guide to the best deals.

Steven Nelson, of The Lang Cat, the consultants who helped put our table together, says: ‘When you think you’re trying to make this money last throughout a retirement of potentially 30 years or more, the amount you pay in fees can have a major impact.’

THE CHARGES YOU NEED TO LOOK OUT FOR

IT’S worth doing careful research on drawdown plans because no two are the same when it comes to fees.

All providers charge an annual fee to look after your investments.

Some charge a flat rate — for example £180 a year — whereas other take a percentage of your fund. This is typically around 0.3 pc of your pot, although it can go as low as 0.03 pc for larger funds.

Just to confuse matters, some have a mixture of both flat fees and a percentage charge.

You may also face one-off fees for setting up the drawdown plan. For example, Willis Owen charges £132.

Bear in mind that on top of these fees you may also have to pay if you buy and sell shares and funds.

Some savers will want to leave their investments almost untouched during retirement, so these so-called trading costs won’t have much of a bearing on their choice of provider. Others, however, may want to chop and change their investments over the years. If you’re in the latter camp, make sure you’ve checked the costs as they can quickly add up.

All these fees are on top of any annual fund management charges you may face.

These are typically around 0.75 pc no matter where you invest, so we haven’t included them in our comparisons.

Many people with £20,000 or less are simply taking this out in several chunks over the space of a few years. This is often because they deem their funds too small to invest for the long term and take a regular income.

This may well be a sensible option for you. However, there can be extra charges for emptying a drawdown plan quickly. For example, Hargreaves Lansdown charges £354 (including VAT) if customers withdraw everything within two years of becoming a new drawdown customer.

POTS WORTH UP TO £50,000

KEEPING costs low is vital, regardless of the size of your pension. But choosing the wrong type of plan can be particularly damaging if you’ve got a smaller pot.

Saga Investment Services, owned

service, range of investments and guidance and research tools by pension comparison website Comparetheplatform.com.

Fidelity and Hargreaves also don’t have any up- front or flat- rate annual fees, charging 0.35 pc of your pension a year and 0.45 pc, respectively. On a £20,000 pot you’ll pay £70 at Fidelity and £90 at Hargreaves — fractionally more than at Saga. On a £50,000 fund you will see £175 deducted by Fidelity and £225 a year deducted by Hargreaves — or £25 and £75 more a year than Saga, respectively. Fidelity lets you chose from nearly 2,000 funds, although you can’t invest in shares and bonds. It gets four out of five for service and research according to Comparetheplatform.com.

Hargreaves offers more than 2,500 funds but also lets you invest in shares and bonds. It gives a ‘rich seam of research and guidance,’ according to Comparetheplatform.com , which gives the broker full marks for service.

Hargreaves, Fidelity and Saga’s Bestinvest service are among the

easiest to use. You also need to factor in charges for buying and selling shares and funds. All three allow you to trade funds at no extra cost. Saga and Hargreaves charge £11.95 for each share trade.

Remember — it’s unwise to switch funds or trade shares too often because you could start to lose out.

POTS OF £50,000 TO £100,000

TYPICALLY, the bigger your pension, the lower the percentage charge you face each year. The reason is that providers think it is unfair to charge, say, 0.4 pc to both a saver with £50,000 (who would pay £200 a year) and someone who had a pot of £1 million, (who would pay £4,000) for barely any difference in service.

For example, Hargreaves Lansdown charges 0.45 pc a year up to £ 250,000 and 0.25 pc up to £1 million.

That means you need to do some homework to make sure you’re with the right provider for you.

If you have a pot worth between £ 50,000 and £100,000 then once again, Saga is the cheapest option. Its 0.3 pc a year charge works out at £300 a year on a £100,000 pot. There are no set-up or fund switching fees.

Alliance Trust Savings is the next cheapest option. It charges £28.50 a month (including VAT), which works out at £342 a year. It then charges £9.99 to switch funds or shares once you’ve set up your plan.

However, beware that Alliance Trust is rated just two out of five by Comparetheplatform due to its lack of fund tips and a ‘clunky’ website.

Fidelity is next. As with Saga, there are no set-up fees. At 0.35 pc you’d pay £ 350 a year on a £100,000 pot.

Halifax Share Dealing and iWeb are the next cheapest. Both charge a flat-rate yearly fee of £180. On top of this someone with £50,000 to £100,000 in their pot would face fees of another £180, bringing the total to £ 360 a year. The difference between the two firms is how much they charge for buying and selling investments.

Halifax charges £ 12.50 for occasional fund and share trades, but this falls to £2 if you choose the ‘regular investor’ option and agree to invest at least £20 a month. iWeb charges £5 per trade.

Halifax offers more than 2,000 funds as well as shares, investment trusts and other investments. However, its website is ‘ dated and clunky’ and ‘ there is little in the way of service or support’, according to Comparetheplatform.com. Halifax also provides the investment service for iWeb.

Interactive Investor comes in at £20 more expensive than Halifax and iWeb at £380 a year for all customers, regardless of the size of their pot. This is made up of £204 (including VAT) for running the drawdown plan plus £20 every three months and a separate £90 a year administration fee. It also charges you to trade shares and funds. You get two free trades every three months but after that it’s £10 a time. If you agree to invest at least £20 a month then this falls to £1.50. With Interactive Investor you can choose from over 3,000 funds as well as all shares, investment trust and bonds.

There is also a wide range of international shares on offer. It gets five out of five for choice and a three out of five for service and guidance from Comparetheplatform.com, which says: ‘It provides a good service for seasoned investors who know their way around.’

POT OF £100,000 TO £250,000

ALLIANCE Trust is the cheapest provider overall on pots this size, thanks to its flat-rate fees of £342 a year, irrespective of how much you’re investing. Halifax and iWeb are next. Again, both charge £360 a year overall as a flat rate.

Both also charge to move your money into different funds or buying and selling shares — £12.50 and £5 per trade, respectively.

Then it’s Interactive Investor with its £380 flat-rate fee. Fidelity is next at £500 a year on £250,000.

As before, it doesn’t charge you to buy funds — but it doesn’t offer shares or bonds.

POT OF £250,000 TO £500,000

THE top deals here are exactly the same as for savers with £100,000 to £250,000 in their pots: Alliance Trust is the cheapest, followed by Halifax, iWeb and Interactive Investor.

Beware that whereas Hargreaves Lansdown, Saga and Fidelity were decent options for savers with smaller pensions, they become much more expensive for anyone with more than £250,000.

For example, on a £250,000 pot Hargreaves would take fees of £1,125, rising to £1,750 on half a million pounds.

This is because its discounted fee of 0.25 pc for larger pots is only charged on the portion of savings above £250,000.

Fidelity would charge £1,000 on a £500,000 pension and Saga’s fees rise to £750 for pots of a quarter of a million and £ 1,250 for half a million.

POTS OF MORE THAN £500,000

EVEN if your pension is extremely large you can keep costs low by sticking with the plans that offer flat-rate fees.

Again, your best bet for cheap prices are Alliance Trust, Halifax, iWeb and Interactive Investor. Other providers such as The Share Centre and Trustnet Direct are worth considering too (see table).