A YouGov survey by Zurich* has revealed that most retirees in pension drawdown are unaware they can vary their level of income drawdown. And, perhaps most alarming, the research found those not receiving professional finance advice were more likely to be potentially missing out in retirement.
When the new pension rules of Pension Freedoms came into force in April 2015, fears were expressed that pensioners might raid their pension pots to go on a spending spree through pension drawdown.
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.
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.
Politicians, consumer groups and the investment industry, in general, welcomed the pension freedoms introduced by the government in April 2015. The changes gave people more choice and flexibility in how they funded their retirements.
However, the sweeping nature of the reforms has caused one or two problems. Earlier this summer, the Financial Conduct Authority (FCA) published its initial study of the new system, alerting savers to potential risks.
