How will reviewing my pension drawdown help me?

The global pandemic may have actually helped your bank balance as the opportunities to spend money have been severely curtailed. If you are in this position, it might be wise discussing your drawdown income with your Financial Adviser.

A pension drawdown is a way of using your pension pot to provide you with a regular retirement by reinvesting in funds specifically designed and managed for this purpose. Take out too little and you might not be able to meet basic living expenses, take too much out and you could significantly damage the pension pot’s ability to support you through the rest of your life.

Ascot Lloyd Financial Adviser, Richard Worrall, shares the advantages of reviewing your pension drawdown to make potential long-term capital gains.

A drawdown pension gives you more flexibility as to when and how you can access your money. You can control the level of your income from the pension, giving you some reassurance that regular bills are covered. So, if your expenditure changes you can easily change your drawdown income to maximise long-term capital gains.

I was asked by a client recently during an annual review meeting, about the merits of ceasing the current income being taken from the existing Flexi-Access Income Drawdown pension and the effect of this on the overall fund longevity. This has been a popular topic due to recent Covid-19 uncertainty and pension fund volatility.

The client had more than two years’ worth of net annual income on deposit, and it was getting very little interest. The client believed, and I agreed, that long-term this would be a potentially better alternative income source than his drawdown plan, for the short term.

The recent reduction in the UK base rate by the Bank of England will certainly have a negative impact on the existing funds held on deposit. This client also has stocks & shares ISAs to potentially supplement any unforeseen retirement expenses. To some clients reducing funds on deposit may be unsettling without having other assets to fall back on especially during periods of uncertainty.

We therefore agreed that it would be better for him to use some of his funds on deposit for the time being and temporarily suspend the withdrawals from his  drawdown fund. We will review the situation together again in 6 months’ time.

This income suspension will avoid the need to sell assets at reduced prices and potentially provide the drawdown plan with an opportunity to recover. This action gave the client the peace of mind that cash on deposit was being used prudently with added reassurance that pressure on the capital value of the  drawdown plan had reduced as part of an overall retirement income plan.

With any retirement income decision, it is always best practice to regularly review your income and expenditure as well as your objectives and most importantly, stay in touch with your Financial Adviser.