Pension Drawdown - risks and important things to consider
Once it’s gone, it’s gone
Unlike an annuity, pension drawdown does not offer a guaranteed income for life. So it is down to you to manage your pension savings responsibly to ensure that they last; or to ensure that you have adequate income or savings to fall back on once your pension savings have been depleted.
You can use our Drawdown Calculator to help you estimate how long your savings will last you based on a range of different income levels in retirement and how changing investment returns will impact on this.
If you decide that you would prefer greater security around your pension income, you should consider a Pension Annuity or Fixed-Term Annuity, both of which come with guarantees of how much you will receive and for how long. And remember, there’s nothing to say you have to put all your eggs in one basket. Some customers like to use some of their pension savings to guarantee an income for life with an annuity, possibly to help cover essential living costs, whilst investing the rest through drawdown to aim to achieve some fund growth during retirement. It’s up to you.
All but one of the 5 investment options¹ available through our Drawdown service comes with a degree of investment risk. This means that whilst the goal is to help your money grow, there is a chance that the value of your investment could fall to some degree.
If you are uncomfortable with the idea that the value of your fund - and, therefore, your income – could fluctuate, then don’t worry. We have a range of alternative options, such as annuities, that can provide you with guarantees over how much you will receive and when.
Should you buy an annuity, the annuity provider subsidises the annuity rate they offer you with the funds remaining when people who previously bought an annuity die sooner than expected. This doesn’t happen with drawdown and so to counter this over the lifetime of the plan you need to achieve a higher investment return. The impact of this becomes more pronounced as you get older.
Range of investments available
In addition, you should note that as we’ve chosen to offer a simple range of 5 investment options through our Drawdown service, this leaves thousands of individual investments that we don’t offer. So if you’re looking for a wider range of options, or greater control over the individual assets in which your money is invested, our service may not be for you.
Equally, if you feel that our Drawdown service doesn’t offer you the range you’re looking for, or you’re simply unsure and would benefit from some advice, you may want to speak to one of our specialist Financial Advisors. They have access to a broader range of investment choices, and would be more than happy to talk through your circumstances with you before recommending your best course of action.
¹ Cash deposit carries no investment risk as your capital will not reduce (not accounting for any charges or withdrawals); however as the interest available on cash deposits can vary and is currently low the real value of your fund would be likely to reduce over the time you have factored in inflation.