Drawdown retirees unaware of income flexibility

A YouGov survey commissioned by Zurich3 has revealed that most retirees in drawdown are unaware they can vary their level of income. And, perhaps unsurprisingly, the research also found those not receiving financial advice were more likely to be in the dark.

Importance of advice

The study suggests over half of individuals who have unlocked their savings since the introduction of pension freedoms in 2015 were unaware they could scale back or stop withdrawals from their pension funds despite flexible income being a key feature of drawdown.

A stark difference was also revealed in the knowledge of those who had sought advice and those who hadn’t. Indeed, while only 35% of non-advised retirees knew they could reduce drawdown income, 77% of respondents receiving ongoing advice were aware of this fact.

‘Pound-cost-ravaging’ trap

There is a danger to this ignorance as it puts investors unwittingly at risk of draining their pension pots if stock markets fall. This is known as ‘pound-cost-ravaging’ (not to be confused with ‘pound cost averaging’) and is where people are forced to sell more investments to achieve unsustainable income levels. Engaging with your drawdown savings is vitally important; we’re here to help you plan effectively.

3Zurich, June 2019

…over half of individuals who have unlocked their savings since the introduction of pension freedoms in 2015 were unaware they could scale back or stop withdrawals from their pension funds…

It is important to take professional advice before making any decision relating to your personal finances. Information within this newsletter is based on our current understanding of taxation and can be subject to change in future. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK; please ask for details. 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.

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. Taxation depends on individual circumstances as well as tax law and HMRC practice which can change.

The information contained within this newsletter is for information only purposes and does not constitute financial advice. The purpose of this newsletter is to provide technical and general guidance and should not be interpreted as a personal recommendation or advice.

Making the most of your time and money

Analysis of HMRC data4 has highlighted the fact that a majority of pensioners are continuing to save for their future. The latest HMRC statistics reveal that the average value of an ISA held by someone aged over 65 now stands at £47,000, an increase of £4,500 on the previous year.

A cautious approach

The data indicates that many pensioners may be putting aside money to cover unforeseen costs, such as a broken boiler and to buy more expensive one-off items rather than relying on their day-to-day income to pay for such things.

It seems other over-65s are continuing to save through fear of running out of money and whilst this may be a good idea in many cases, some over-65s could be living unnecessarily frugal lives as a result of this fear.

Finding the right balance

It is always a fine balancing act ensuring you plan for your future without forgetting to live in the present. Seeking sound financial advice can help to ensure you achieve the right balance.

4Just Group, May 2019

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