Three of the best: One expert’s drawdown picks

The managing director of Scottish Borders-based advisory firm Lowland Financial Services, says if a client understands the risks involved they can take a regular, flexible income into retirement, which is particularly attractive for those with larger pension funds and a range of alternative income sources.

But with a range of drawdown products available, from traditional insurers, to Sipp providers and both advised and non-advised investment providers, which products does Mr Mitchell recommened?

Scottish Widows Retirement Account

first up, Mr Mitchell says the Scottish Widows Retirement Account was a popular choice which he had used since launch.

Scottish Widows combined retirement planning and income into a single plan in 2008, in a move which Mr Mitchell calls “ahead of its time”, offering a “transparent and unbundled charging structure” which was the forerunner of the RDR.

Iain McGowan, the current head of savings and investments at Scottish Widows, says at the time that the addition of a drawdown capability to the established retirement account provided a “complete retirement planning solution”, making an adviser’s management of their client’s policies more straightforward, and all through one integrated platform.

The product offers clients a range of funds from ready-made investment portfolios to specialist funds, with seven risk-rated fund-of-funds and the facility to switch funds on a lifestyling basis free of charge.

Adviser charging is facilitated on a monthly or yearly basis, with drawdown available between the ages of 55 and 73. Minimum initial fund size is £50,000 and product annual management charges range from 0.10 per cent to 0.70 per cent, depending on the size of the investment.

Fund AMCs range from 0.10 per cent to 1.72 per cent. Service charges reduce gradually from 0.65 per cent for investments between £10,000 and £20,000, to 0.10 per cent for investments of £2m and higher, and the account has access to 135 funds.

Mr Mitchell said: “This product has stood the test of time, and the cost reduces as the value of funds increase. It offers cheap in-house funds for a governed investment approach, and with no drawdown charge, unlimited free switching and no hidden costs, it can offer a no-frills option and is a good place to start.

“Funds are linked to Fidelity FundsNetwork portfolios, offering a broad range of active funds, but it can also offer a more bespoke approach, and can access discretionary fund managers.

“It’s a good all-rounder, which I have used quite a bit, however Scottish Widows could do with a refresh in terms of online functionality.

“You currently can’t search for a fund by name on the platform, which is a bit basic, and the lack of model portfolios is disappointing, as this is a function which I’m increasingly using, but overall, this has been the product to beat.”

Aviva Pension Portfolio

An alternative to the Scottish Widows product is offered by Aviva. The provider’s recently overhauled income drawdown solution is offered as part of its Pension Portfolio product, and is available on the Aviva platform.

The product, which was re-launched on 10 March, has been remodelled to allow customers a range of “cost-effective options” on both a flexible and capped drawdown basis, and in a tax efficient manner, says Clive Bolton, Aviva’s managing director of at-retirement.

He said: “It’s essential our industry continues to develop competitive and good value retirement income products, such as capped and flexible drawdown.

“For those willing to accept some investment risk, income drawdown can offer tax efficient options and a level of flexibility that enables them to adjust their payments when they need to, but at the same time, they can keep some of their pension fund invested, and protect their valuable death benefits.”

The product facilitates adviser charging on an initial and ongoing monthly basis, with unlimited drawdown after the age of 55 years old. It has a minimum initial investment of £50,000, and a product AMC of between 0.20 per cent and 0.35 per cent.

Fund AMCs range between 0.10 per cent and 1.75 per cent, while the account has access to 127 funds.

The product also includes a new flexible single and phased solution, which allows customers to access funds without government actuary department limits that can help safeguard death benefits.

Mr Mitchell says: “The ability to pass on death benefits is a big advantage for drawdown products. Aviva’s proposition allows you to combine a pension product with an Isa, which is attractive, and I’m impressed with their service levels, however, you have to invest more than £250,000 to access the lower AMC of 0.20 per cent and they have to be invested in Aviva’s core funds.

“While the proposition is very online orientated, a criticism is that you need a bank account to access the plan, but it has a competent range of portfolios.”

FundsNetwork Pension

Fidelity’s FundsNetwork Pension is another option used by Mr Mitchell. Last month, Fidelity removed all additional charges on the product, leaving it with a 0.25 per cent service fee and a £45 investor fee, which is only payable if a client does not already pay it on an Isa or collective FundsNetwork investment.

Paul Richards, head of sales at FundsNetwork says the removal of charges “simplified an already straightforward pricing structure, and made it easier for advisers to compare pension products available through platforms.

Mr Mitchell sys: “With the flat £45 a year charge you have to work out if its more cost-effective for each client against a percentage. Fidelity used to charge £100 per tranche of drawdown, so this removal of extra charges is welcome.

“Sipp providers also offer drawdown products, but I don’t believe they are as clean and simple on their charging structures, with many providers charging for the basic cost and a range of additional charges, which soon add up.

“They are also liable for VAT, unlike the insurance provider options, and this has to be a key consideration when so many products are so similar.”