Vanguard entered the UK pensions market last year with the lowest cost SIPP (self-invested personal pension) in the UK, but at that time only for pension savers and not for those who are looking to or are already withdrawing from their pension pots (known as drawdown). Vanguard announced on 30 November that it will now be offering drawdown and will have pension specialists to guide people through the process.
Until now, investors could squirrel money into a pension, but it had yet to introduce the drawdown bit which allows investors to take money once they’ve retired. That’s been fixed now. When you start taking some money out of your Vanguard pension, you can take a lump sum, which is tax free, and then the rest goes into a separate pension pot to be taken as an income – which is taxable. There aren’t any additional charges from Vanguard to do this (some providers charge a fee to set up a drawdown instruction).
Once you start approaching age 55, you’ll receive a pack from Vanguard outlining your options. If you decide to start withdrawing from your pension, you submit a request and Vanguard will provide you with an illustration – a document that outlines the potential effect of what you’ve asked for – and it will also set up a meeting with one of its pension specialists.
Pension specialists
Vanguard has a team of pension specialists that can help guide you through the process, but this isn’t the same as independent financial advice (even though some of Vanguard’s pension specialists are ex-financial advisers!). If you’re unsure of whether you’re doing the right thing after speaking with the pension specialists, you may want to seek financial advice before going ahead.
Vanguard doesn’t offer financial advice, but you can find an independent financial adviser local to you through either Unbiased.co.uk or Personal Finance Society. Independent financial advice isn’t free, whereas guidance often is. Guidance will explain your options, whereas advice will explain your options and recommend the one best suited to you.
If you want guidance but from an independent source, you could also make use of the free Government-backed guidance service called Pension Wise to help you understand the impacts of your decisions.
The process
Since 2015 there are more ways to take money out of your pension, including flexi-access drawdown (we covered the new options in this blog). Vanguard says there will be plenty of online assistance to help setup flexi-access drawdown, and once you’ve understood and agreed to go ahead your instruction, your pension pot will be split into two accounts.
One is a pre-retirement account for money that hasn’t been touched yet, and one called post-retirement account for… you guessed it… money you’ve taken out. Vanguard can pay its customers on the 1st, 10th, 15th and 25th of the month, which is more than some providers, but others can offer any day of the month.
You may want to crystallise smaller amounts monthly (also known as drip-feed drawdown). If you do, you’ll need to go through this process each month, which might be a bit of a pain.
The rub
Vanguard’s SIPP launched in the beginning of 2020 and on 30 November, it made good on its promise to make drawdown available during the 2020/2021 tax year. Vanguard’s SIPP is very competitively priced, with charges of 0.15% of your total Vanguard accounts (it also has ISAs and GIAs available) and charges are capped at £375 a year.
If you did go ahead though, you’ll need to be comfortable with only being able to invest in reduced version of Vanguard’s passive fund range.
