Pension Drawdown

There is growing concern within the industry that following Pensions Freedom in 2015, more and more of the general public are opting to access their pension by way of drawdown but without taking any advice first. Prior to 2015, annuities accounted for roughly three quarters of all pension claims with drawdown taking a much smaller slice of the market. However, in the last five years those numbers have reversed with drawdown now representing nearly three-quarters of claims.

We believe that pension drawdown under the new Pension Freedom legislation is an excellent development for the public and offers much greater flexibility for money accumulated during an individual’s working life. The ability to access money when it is required and for tax planning, the ability to suspend payments if market conditions dictate, the ability to keep the pot of money invested in a tax-efficient environment to benefit from ongoing investment opportunities and the ability for beneficiaries to inherit any remaining pensions upon death are the main attractions.

However, the problem that the regulator has identified (and is now seeking to address) is that with the increasing drawdown numbers, so too are the number of claimants who are opting not to take professional advice. This seems a very odd decision to take with an often substantial sum of money that has been saved over many years and which may determine the individual’s financial future and comfort during their later years. The unintended consequences of not taking advice has led to many pension pots sitting dormant in cash for long period after an initial withdrawal when a mixed portfolio of investments is likely to have been a far more appropriate option. Individuals have also extracted large sums (beyond their tax-free cash entitlement) resulting not only in large tax liabilities but also a lot less to support their financial needs in retirement.

Rather than leaving your future retirement to chance, please do consider whether you need to seek professional advice. Our own approach would be to consider all of your assets (including pensions), your current and anticipated income in retirement, your requirements based upon your different lifestyle, any shortfall that may exist and how best to address that, any capital spending plans you may have, market conditions, inflation and your family and any financial dependants. This is not a five-minute process but ensures that your situation is thoroughly reviewed and that an appropriate financial plan for your retirement (which may or may not involve pension drawdown) is identified.