Don’t overdo pension drawdown
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Don’t overdo pension drawdown
With more than half of people in drawdown unaware they can vary their income or stop it altogether*, concerns have been raised that many are draining their retirement savings far too fast. Financial Conduct Authority data shows that the number of pension plans fully withdrawn at the first time of access rose by 5% in 2019/2020 to 375,000, while an estimated 90,000 retirees took an annual income of 8% or more from their funds, only sustainable through periods of very strong growth. Meanwhile, only 36% of people accessing their plans for the first time sought advice.
Low take-up of advice
Low take-up of financial advice and guidance provision means that many older people are making risky decisions they may later regret. Many investors are at risk of taking an unsustainable level of income and being left financially vulnerable later in retirement. The government’s tax takings from pensions are currently around £2bn higher than expected due to pensioners drawing large sums all at once and/or drawing so much they pay a higher tax rate. In addition, around 30,000 drawdown users are holding inappropriate investments that could later result in losses.
Unsustainable withdrawals
Accessing drawdown while the market is falling can have a negative impact on individual pension funds – a phenomenon known as ‘the sequence of returns risk’. In other words, drawing from a fund in a falling market can make it harder for the fund to recover later, as it has less capital to work with. Tens of thousands of retirees are facing a large drop in income or risk running out of money altogether by not modifying their withdrawals at the right time.
We can help
It’s important to be informed and understand all your options about pension drawdown to ensure you don’t risk financial hardship later in life. We can help to bring clarity to your retirement decision-making, so do get in touch.
*Zurich, 2019
It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from, taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. No part of this document may be reproduced in any manner without prior permission.
The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. If you withdraw from an investment in the early years, you may not get back the full amount you invested. Changes in the rates of exchange may have an adverse effect on the value or price of an investment in sterling terms if it is denominated in a foreign currency.
Information is based on our understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change.
Tax treatment is based on individual circumstances and may be subject to change in the future.
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