Understanding the risks of pension income drawdown

Drawdown – Understanding The Risks, Advice Is Essential

We’re sure you’ve heard the term pension drawdown; this is where you leave your pension fund invested and take income as and when you need it, instead of using the cash to buy an annuity as people did traditionally. As the money remains invested, the pension fund can continue to grow, even when you’ve retired.

Since pension reforms, introduced in 2015, more retirees have opted to take this more flexible option with their pensions, and the Financial Conduct Authority has reported that drawdown has become much more popular, with twice as many people moving their funds into drawdown rather than an annuity.

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Retirement planning - Investing Income for retirement

Investing for Income in Retirement

Today, savers reaching retirement have more choices than ever before about how they use their pension pots to fund their retirement.

Instead of simply using their pension money to buy an annuity that provides a guaranteed income for life, many choose to invest throughout their retirement years. The challenge this brings is to deliver a continuing income, while ensuring they don’t run out of funds later in life.

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Taking 25% out of your pension may seem attractive

Taking 25% out of your pension pot may seem attractive

Since Pension Freedoms were introduced in April 2015, people are now able to access their pension funds more flexibly and can take up to 25% of their pension as a tax-free lump sum, at age 55 or above. Pension drawdown, also known as income drawdown allows you to access a quarter of your private pension funds, without paying any tax, and also enables you to keep the remaining balance of the pension funds invested, ensuring it still has the potential to grow – unlike if you were to purchase an annuity.

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Pensions in income drawdown fear running out of money

Pensioners in drawdown fear running out of money

Since the introduction of the new pension freedoms in April 2015, more and more retirees have opted to take flexible withdrawals from their pension funds by going into what’s referred to as drawdown. The Financial Conduct Authority recently reported that drawdown has become much more popular, with twice as many pots moving into drawdown than go into annuities. But managing your own withdrawals, will you run of out money when it retirement?

Income drawdown is where you leave your pension pot invested and take an income directly from it, instead of using the money in your pot to buy an annuity (a regular guaranteed payment from an insurance company). With drawdown, the money left in your pot will continue to benefit from any investment growth.

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