Passive investment giant Vanguard has launched a drawdown option, opening up its low-cost Sipp to retirees taking an income from their savings.
A shake-up of the pension rules in 2015 gave retirees more control and greater freedom over their pension savings. Retirees are no longer forced down the traditional route of buying an annuity but can keep their pension invested and ‘draw down’ their cash either in lump sums, as a regular income, or a combination of the two.
The Vanguard Personal Pension launched earlier this year and provides access to 78 low-cost funds and exchange-traded funds (ETFs) for a fee of 0.15%.
Like Sipps on most platforms, Vanguard’s drawdown facility does not feature an additional charge. AJ Bell, which had levied drawdown fees, is dropping them at the turn of the year.
Vanguard said the results of a study it had commissioned showed its Sipp was cheaper for those in drawdown than the average costs of other major platforms.
The study, conducted by consultants Platform, examined the impact of costs on a £210,000 pension pot invested in the Vanguard Target Retirement fund across 13 platforms.
The example assumed £10,000 was withdrawn each year through a combination of regular monthly withdrawals and annual ad hoc payments, and a 4% investment return was achieved after fees.
The study found drawing money at this rate meant a retiree invested through the Vanguard Personal Pension, would still have £180,140 remaining after 10 years while the most expensive Sipp would deplete the pot by a further £7,168, and the average Sipp by £4,048 more.
Sean Hagerty, head of Vanguard in Europe, said: ‘An individual’s savings often represents a lifetime’s effort, yet too many retirees continue to lose out on their own hard work to high fees and charges.
‘Fees can have a sizeable impact on investment returns, and consequently on quality of life in retirement.’
He added that in an uncertain market investors should focus ‘on what they can control’ such as ‘what they pay to invest’.
From 1 January, AJ Bell is removing drawdown fees, meaning investors will no longer have to pay the £25 plus VAT fee for taking a one-off lump sum from their pension, nor the £100 plus VAT fee per year on regular drawdown payments and lump sums.