Pension drawdown has become a highly popular option for those with a private pension. Thanks to pension freedom, this means that you have the option to withdraw money from your pension fund after the age of 55. The amount of retirement income, and how often, is up to you. There are some great advantages to this – the tax-free lump sum cash option is particularly popular – but this needs careful planning to avoid your money running out and a drawdown disaster.
After years of hard work and paying in, a comfortable retirement is probably the light at the end of the tunnel.
40% of over-55s, however, are worried that their money will run out. (1)
Moneywise.co.uk – April 2018
It’s worth taking some time to make some retirement decisions and figure out how much you are going to need – and if you’re on track to build up the pension fund needed to provide this.
Many people are now choosing income drawdown as an option in their retirement planning. This is different to the traditional annuity which most people used to purchase – so here is a guide to pension drawdown, and how to work out whether it’s for you.
Put simply, income drawdown means your defined contribution (DC) pension is like a savings account. Whether or not you choose to claim your tax-free lump sum cash, you can withdraw money out of your DC pension whenever it’s required. The rest stays in your pension pot and means your investment can continue to grow.
A pension assessment should be a key part of anyone’s retirement planning. Now is the time to check whether your savings are growing as they should be.
As your retirement planning starts to take place, there are several options to think about to make sure you get the most from your pension savings. ‘Pension freedom’ now offers a range of choices, such as income drawdown. You may have heard about the 25% tax-free lump sum you could take out of your pension at age 55; you might even be enjoying it already! Since 2015, however, there have been extra options available for you when considering your next steps.
The days of spending your whole career working for one company – and paying into a single pension pot – are over. Auto-enrolment laws mean that many people have a number of smaller workplace pension funds and some larger companies offer defined benefit pensions too. As well as making retirement planning harder, this potentially loses you money. Pension Consolidation might not just make things easier but could be profitable, whether you choose income drawdown or an annuity.
Many people spend their working lives planning and saving for their later years. However, when they reach retirement they can be unsure as to how best to allocate their cash. This is where cash flow planning can really help.
In yet another sign that retirement is becoming an increasingly fluid concept, figures from the Office for National Statistics show that the number of women working past the age of 70 has doubled in the last four years.
The abolition of the compulsory retirement age in 2011 has meant that many more workers, men and women, are choosing to work on past their normal retirement date. For some, it’s the desire to keep physically and mentally active into their later years, for others the freedom to work for longer provides a welcome boost to their retirement income. With increased life expectancy, many more people are set to live active lives well into their eighties.
According to research carried out for the Pensions Policy Institute, many pensioners are relying on their state pension for three-quarters of their income. It can come as a shock to many that their state pension entitlement increased to £164.35 per week from April 2018, but only for those who have a complete record of National Insurance contributions, meaning that some people will receive less. On top of that, the government announced last July that the state pension age would be increased to 68 between 2037 and 2039.
Millions of Britons are unable to spot even the most obvious pension scams, according to new research that calls for stronger checks to help people avoid them. The study from the Pensions and Lifetime Savings Association (PLSA) found that 29% of the 2,000 people surveyed, equating to 14.8 million UK adults, were unable to spot even the most obvious scams.
