Since the new pension freedoms were launched nearly a year ago in April, they highlighted more ways to access your pension savings than ever before for your retirement.
Since then, savers have been embracing their new found freedoms and considering alternative solutions to the more traditional pension annuity, with one example being pension drawdown.
Pension drawdown is a flexible way to access your pension savings and help you to manage your tax bill. It allows you an element of 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, as well as providing the potential opportunity for growth.
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. Stock market volatility can mean that the value of your fund could fall if the underlying investments do not perform as expected. This could mean your fund may even run out during your lifetime if you're not careful.
This has resulted in a drop from 54% to 42% amongst savers opting for pension drawdown (1), indicating that the risk of poor performance during times of market volatility is too much for some and may outweigh the benefits of drawdown being a flexible and tax efficient option.
Consequently, annuities are now seeing a revival, with 71% more people opting to purchase one since April 2015 (2), indicating that turning your pension savings into a regular, guaranteed income for life, for you and, if required, a partner, is preferable when seeking a secure and low risk approach for your retirement.
Plus, 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 (3) through an enhanced annuity. It is recommended that you compare the annuity market as you could achieve higher annuity rates and therefore increased income for life.
Whether you decide to choose pension drawdown, an annuity or another pension income option, it's so important that you seek professional advice or guidance from an individual or company like Age Partnership who are regulated by the Financial Conduct Authority (FCA) to ensure you remain protected and understand all the risks associated with each pension-income option.
In the minefield of alternative advice, it's reassuring to have 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.
Use our online calculator to compare your pension-income options.
To find out more, visit www.agepartnership.co.uk or call Freephone 08000 810 815.
1 eValue, 2016
2 Increase based on Age Partnership annuity purchases from April 2015 to February 2016.
3 Moneywise, 2015