As a result the new freedoms prompted a lot more people to opt for pension drawdown over an annuity, as savers were embracing their new found freedoms, and considering alternatives to an income for life.
Pension drawdown is a flexible way to access your pension savings and manage your tax bill. It allows you to be in control of your fund as there are no limits to the amount that you can withdraw from your savings or when you can take it.
However, drawdown can have its downsides. As pension savings remain invested, there is the potential for them to reduce in value as well as increase, because there is no guarantee of investment performance meeting future income needs. This means your pension income could even run out during your lifetime if you're not careful.
As such, the recent stock market volatility has caused uncertainty among some savers who have opted for pension drawdown and have seen their funds start to deplete due to poor performing investments, whilst still needing to take an annual income.
This has resulted in a drop from 54% to 42% among savers opting for pension drawdown1. Indicating that the risk of poor performance during times of market volatility is too much for some and outweighs the benefits of drawdown being a flexible and tax efficient option.
Consequently, annuities are now seeing a revival, with sales jumping from 33% back in April to 47% (according to eValue), indicating that turning your pension savings into a regular, guaranteed income for life, for you and, if required, a partner, has advantages if your priority is a secure and low risk approach for your retirement.
Plus, a report by Moneywise last year found that health and lifestyle factors, which often aren't considered in the quotes sent by existing providers, mean that you could qualify for up to 40% more pension income through an enhanced annuity.
It is therefore essential to compare the whole of the annuity market at retirement, as you could achieve higher annuity rates and therefore increased income for life.
Whether you choose pension drawdown, an annuity or another pension income option, it's important that you seek professional advice or guidance. It's worth talking to an individual or company like Age Partnership who are regulated by the Financial Conduct Authority (FCA), to ensure you understand all the risks associated with each pension-income option.
Alternatively you can talk to the government-approved Pension Wise service, who can offer useful guidance – although not tailored advice to your circumstances.
It's also helpful to use a simple pension calculator that will give you an accurate snapshot, backed up by well-informed, regulated advice or guidance on the ways you can make your pension work for you.
To find out more, visit www.agepartnership.co.uk or click here
1 eValue, 2016