Independent financial adviser, Becky Hammonds of Willow Financial Solutions, looks at how you can maximise your pension.
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 introduced in 2015 more savers with defined contribution pensions now have the choice to keep their pot invested and draw on it as they please – rather than buying 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. So, instead many people are choosing the option of investing their pot in a drawdown scheme for income and hopefully a bit of growth.
By comparison, income drawdown schemes allow you to take sums out of your pension pot while the rest remains invested.
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.
Some will come ready-made, with investments chosen to reflect your attitude to risk, but you will need to look at them to decide whether they suit your needs. With others, you will need to be pro-active about choosing investments, or pay a financial adviser to do it for you.
Another option is to buy a fixed-term annuity – the name has ‘annuity’ in it but it is a really a short-term investment product that allows you to defer a decision on how you fund retirement.
The length of the term can vary but it is often two, three or four years, and they have the advantage of not being irrevocable like a usual annuity which lasts the rest of your life.
Over the next few issues we will look at other pension investment opportunities.
Remember that these are major decisions, not to be taken lightly and the expertise of a qualified, experienced, independent financial adviser could save you thousands of pounds.