Retirees now have the option of investing their pot in a drawdown scheme for income and hopefully a bit of growth instead of automatically going for an annuity
Following the pension freedom reforms more savers with defined contribution, pensioners now have the choice to keep their pot invested and draw on it as they please – rather than buying an annuity.
What is an annuity?
Annuities may still prove the best option for some. Annuities provide a guaranteed income for life but are widely considered poor value for money in recent years – and instead many people are choosing the option of investing their pot in a drawdown scheme for income and hopefully a bit of growth.
A stream of research has shown that while savers heartily welcome the freedoms launched in April 2015, they feel baffled and overwhelmed when dealing with the new choices opened up to over-55s of spending, saving and investing their retirement pot.
Meanwhile, financial market volatility this year has left people who entered drawdown schemes last spring potentially facing losses, and also in a quandary because taking an income from shrinking investments early on can do severe damage to a portfolio.
Investing your pension pot: Getting started
Most people save for retirement by simply diverting some of their salary into their employer’s ‘default’ pension fund, and take little or no interest in what it’s invested in until they get fairly close to retirement.
But taking advantage of pension freedom means moving from that very low level of engagement to choosing a portfolio spread across a number of different asset classes, reviewing the strategy around once a year, and rebalancing investments when necessary.
Income drawdown schemes allow you to take sums out of your pension pot while the rest remains invested. A lot depends on what you are invested in and how well it performs.
At its simplest, a drawdown scheme is simply an investment portfolio geared towards being able to withdraw an income to live on but preserving enough capital so it doesn’t run out before you die.
Seek professional advice
Remember that these are major decisions, not to be taken lightly and the expertise of a qualified, experienced, independent financial advisor could save you thousands of pounds.
For more information contact Becky Hammonds on 07969 269677 or email firstname.lastname@example.org