Retirees are choosing to take advantage of the flexibility Pension Freedoms bought them in 2015. In the years since, more than one million people have chosen to make adaptable withdrawals from their pension. But it may not be the best way to access your provisions.

Official figures show a record-breaking £7.83 billion was withdrawn from pensions in 2018, spread across almost 5.5 million individual withdrawals. This compares to £6.54 billion being taken in 2017. While the initial concerns that retirees would rush to access their pension as soon as possible to purchase sports cars and fund lavish holidays have proved unfounded, flexible withdrawals aren’t always the best option.

While the choice to use Flexi-Access Drawdown means you can adapt the income you withdraw from your pension, it does come with some downsides too. While flexibility is often a big draw for retirees today, the negatives may mean another way to access your pension is more suitable.

First, you’ll be able to increase or decrease withdrawals when you choose. However, you’ll need to ensure that a pension will last throughout your life. Second, your pension will usually remain invested when using Flexi-Access Drawdown. It gives you an opportunity to continue growing your pension savings, but it could also mean it’s exposed to investment volatility.

With this in mind, how do you decide if Flexi-Access Drawdown is the right option for you? You need to look at the bigger picture and what your planned retirement entails.

What should you consider before choosing a retirement income?

Priorities: Your overall priorities should be the top consideration. While Flexi-Access Drawdown provides adaptability, it doesn’t offer the same level of security that alternatives do. If you prefer to know what money you have coming in every month, an Annuity may be better suited to your priorities, for example.

Risk profile: Some pension withdrawal options mean the savings remain invested and, therefore, exposed to a level of risk. As you consider your retirement, it’s a good time to evaluate what your overall risk profile is too. Would you be happy to take bigger risks in return for potentially higher gains? What’s your capacity for loss? It’s important to match your risk profile to the pension decision made.

Health and longevity: Your health and longevity ask a crucial pension question; how long will it need to last? While it’s impossible to predict how long you’ll live, reflecting on how many years a pension is likely to need to provide support for is important. If you’re in good health, you may decide that an Annuity will provide the security necessary to achieve your goals over the long term. Conversely, if you have poor health, you may decide to take greater levels of income in your earlier retirement years before enjoying a slower pace of life.

Lifestyle goals: A retirement income needs to reflect your goals. If your plans would benefit from higher levels of withdrawals at certain points, to fund home renovations, travelling, or one-off purchases, for example, flexibility may be key to achieving them. As a result, setting out your aspirations before you move forward can lead to a more informed decision that’s right for you.

Legacy plans: If a key aim is to leave loved ones a legacy, a pension can be an effective way to do so. Money left in a pension can be used to tax-efficiently pass on wealth to beneficiaries. This is because a pension isn’t considered part of your estate for Inheritance Tax purposes. Alternatively, you may decide to gift wealth now to provide financial support while you’re still alive. In this case, being able to withdraw lump sums from your pension savings could be beneficial.

Choosing a retirement income that’s right for you

Even with the above considerations, you may be concerned about choosing the wrong option. That’s natural; it’s a decision that could affect your financial security for the rest of your life.

There’s no one-size-fits-all policy when it comes to retirement. We’re here to help you bring all the different aspects of retirement planning together, building an income and the lifestyle you want. To understand how your pension can deliver an income, please contact us.

Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.