As the competition for drawdown business hots up, it’s driving down costs for retirees. Low cost drawdown plans are becoming more popular with people who want drawdown for its flexibility but aren’t wanting the extra bells and whistles offered by some providers. Much like the budget airlines, you still get the underlying service, but without as many frills.
Low cost drawdown plans provide access to drawdown and its features but on a budget. They are mainly used for one of two reasons.
- By someone wanting to withdraw money as quickly as possible but over a number of years to manage their income tax bill.
- An investor who prefers to target charges saving over ongoing historical performance
For years retirees used price as a comparison when comparing annuities and so it’s a natural starting point for someone looking at drawdown. There are many more moving parts to consider when picking a drawdown provider but it’s hard to overlook the ongoing costs.
LV operate a low cost plan which limits the fund choice but is very reasonable. They offer access to around 140 funds of different risk levels enabling you to build your own portfolio.
Royal London are a similar cost to LV but offer prepacked portfolios. This can be useful for an inexperienced investor who may be overwhelmed by the choice and the decision making process when constructing a portfolio.
AXA have just moved into this space, albeit temporarily with a ‘buy it now’ to receive your discount, drawdown plan (saving of up to 0.55% annually are possible before 31st Dec 2015). Again they have prepacked portfolios but with the added bonus of volatility management. These funds move your money out of risky assets (shares) if the markets fall sharply and to reduce major fluctuations.
All the above plans can be run from around 1% including ongoing advice, which compares to around 1.5% – 2% from other providers. With the mid-range drawdown plans their fund choice is wider and management more hands on. As with most things you tend to get what you pay for with fund management charges (dog funds excluded).