Pension drawdown advice
Ever since the Pension Freedoms regulatory changes of 2015, drawdown pensions have continued to grow in popularity. However, drawdown arrangements can be complex and they’re not always appropriate for every retiree.
This article explains why it’s so important to seek advice on pension drawdown and inform you how to go about getting it.
You’ll also learn how pension drawdown works, the different types of plans available – and what to think about if you’re considering it.
Here’s what we’ll cover in this pension drawdown guide
Why is it important to take pension drawdown advice?
Income drawdown is a complex form of retirement that is far more hands-on than an annuity. Drawdown schemes need to be regularly reviewed and occasionally rebalanced – this is to ensure that they continue to provide the returns you need as the markets change.
Professional income drawdown advice can help you to achieve peace of mind, and avoid any potentially expensive mistakes later down the line.
It’s also important to have your pension reviewed by an expert regularly, to make sure you’re on the best plan for your needs and circumstances.
Where can I get advice on pension drawdown?
Qualified financial advisors have the knowledge and experience to help you decide whether drawdown is right for you and, if it is, to find the scheme that best suits your unique circumstances.
We work with a great team of finance professionals and would be happy to put you in touch with one of them. Give us a call on 0808 189 0463 or make an enquiry to speak with one of the pensions experts we work with on the phone today – they can offer bespoke advice and carry out a pension review for you.
A guide to pension drawdown: What is it and how does it work?
Pension drawdown (also known as ‘income drawdown’) is one of the few ways for you to take money out of your pension pot once you reach the age of 55 (or younger if certain conditions are met).
It’s a flexible option that allows you to take as much (or little) as you want from your pension pot – when you need it.
As is typical with pension arrangements, you can withdraw 25% in a tax-free lump sum with the rest of the balance taxed at your marginal rate l. You can withdraw the taxable balance separately from the rest of your pot, or ‘mix and match’ both taxed and untaxed income.
Many people choose to take the tax-free 25% as a lump sum, and then reinvest the other 75% into a fund linked to the stock market. Ideally, the interest on your investment would provide enough for you to live off – without needing to touch the capital.
This, of course, is not guaranteed. As a result – how much money you make depends largely on the performance of the funds in which your pension is invested.
Drawdown vs buying an annuity
All of this is in contrast to an annuity, which is the main alternative to pension drawdown.
In an annuity, you exchange your pension pot for a guaranteed income stream. However, exchanging your pot effectively ‘locks you in’ and an annuity might not match the returns possible in a drawdown scheme.
If you’d like to know more about the differences between pension drawdown and annuities get in touch and we can arrange for an advisor we work with to speak with you directly.
Pension drawdown tips
Below you’ll find some tips on pension drawdown.
Consider taking advice before going into drawdown
Once you begin the process of drawdown, you can’t reverse it. An advisor can help you to see if now is the right time and, if it is, to make sure that you’re informed as you can be, and that everything is done as tax-efficiently as possible.
This is even more important if you have multiple, or complex income streams, or are planning to transfer from a defined benefit pension scheme. Make an enquiry to speak to one of the specialist pension advisors we work with over the phone today.
Ensure that drawdown is the best option for you
Because even if drawdown is the right option for you, delaying it for a while may allow you to save more in now, and take more out later. Remember – unlike an annuity, your income is not guaranteed with drawdown. If you qualify for an enhanced annuity, or need a minimum income that you can absolutely count on, drawdown might not be right for you. Make an enquiry to speak with a pensions advisor who can help you determine whether drawdown is the best course of action.
Ensure that now’s really the right time to begin drawdown
Once you start to drawdown, the amount you can put into your pension drops from £40,000 to £4,000 a year. If you can defer, and put more in – your later returns could be more bountiful.
Budget for your future, and review your budget regularly
If you don’t make a realistic assessment about how much you might need to drawdown, you could very well find yourself running out of money later down the line. Like any budget, be conservative and revisit regularly – the markets can change, and so can your life circumstances.
Stay on top of your fund performance
Markets (and their returns) can and will change. Drawdown is certainly not a ‘hands off’ way of financing your retirement and if you don’t keep an eye on what your fund is doing, you might not be able to. Regular reviews of your investments should go hand in hand with reviews of your budget – along with any necessary rebalancing of your funds.
Hold some emergency cash
Seeing as your fund’s performance is tied to the markets – its value can go down as well as up. If you need money quickly, you may need to withdraw before your investments have the chance to recover.
Take regular professional advice
Once you’ve begun the drawdown process, taking regular financial advice can help you to ensure that your retirement planning and income are as tax efficient as possible. Make an enquiry to speak to one of the pensions advisors we work with today!
What are the various pension drawdown plans?
As of 2015, only one form of drawdown is available – this is known as ‘flexible’ or ‘flexi-access’.
There are a few rare exceptions to this in the form of ‘capped’ drawdown schemes, which are explained below.
What’s a ‘capped’ drawdown’ plan?
Capped drawdown is a form of drawdown that existed prior to the Pension Freedoms of April 2015. The only capped drawdown schemes available today are ‘legacy’ schemes from before 2015 that are still being supported (and are gradually being phased out).
Is there much difference in drawdown plans offered by different providers?
Yes there can be. Finding the best drawdown provider for you is largely a matter of finding the fund (or funds) best suited to your unique circumstances. If you’re not exactly sure what this might entail, you could consider taking the advice of a pension expert.
The terms of pensions are strictly governed by law, but there can be quite a lot of variety from provider to provider when it comes to terms, investment choices and charges for pension drawdown plans.
Is income drawdown right for me?
It’s hard to say but it’s certainly possible. There’s no one right answer for everyone as our requirements will all likely differ in some way.
The potentially higher income and obvious flexibility of drawdown must be weighed against the fact that an annuity could provide you with a secure income for life.
Your risk tolerance and personal circumstances all come into play. Professional advice is obviously important here.
Get financial advice from a pension drawdown expert
If you have questions and want to speak to an expert for the right advice, call Online Money Advisor today on 0808 189 0463 or make an enquiry.
Then sit back and let us do all the hard work in finding the pensions expert with the right expertise for your circumstances.