Advantages and Disadvantages of Pension Drawdown

What Are the Advantages of Income Drawdown?

• Access to tax-free pension cash
  Either immediately upfront or in tranches as you draw down your pension
• Flexibility
  Vary your drawdown income up and down in any given tax year to help control the amount of tax you pay
• Opportunity for growth
  As your pension stays invested after retirement, it has the chance to continue growing
• Investment control
  Depending on your provider, you’ll likely have access to a wide range of investment options
• Tax-free investment growth
  All funds that remain invested in a pension or a drawdown fund retain tax-free investment return
• Favourable inheritance rules
  Pension drawdown allows you to pass on any funds still invested free from inheritance tax, which is often easier than passing down annuity income
• No need to lock in an annuity at today’s low rates
  Although you can still buy one later if you want or need to (and using pension drawdown in the meantime may give time for annuity rates to improve).

Disadvantages to Pension Drawdown

It’s important to realise that, as with any part of life, there could be some drawbacks to pension drawdown as well as many benefits. That’s why getting expert advice can be so beneficial, as an adviser can help you steer clear of some of the pitfalls you might face, such as taking too much income and running out of money before the end of your life.

• Your drawdown fund could run out
  If you take too much money or your investments underperform you could run out of cash (using the above Pension Drawdown Calculator can help address this risk)
• Drawdown income isn’t guaranteed
  An annuity provides you with a guaranteed income for the rest of your life; this isn’t the case with drawdown, where the pot is finite
• You’ll take on all the investment risk
  Getting a pensions expert to build you a balanced drawdown portfolio suited to your needs and risk appetite could help reduce the chance your investments will perform poorly, but ultimately you’re still invested in and at the mercy of markets
• Potential to overpay tax
  It’s easy to get in a muddle with drawdown when taking income from various different sources and you could be pushed into a higher tax bracket than necessary. A financial professional can help you manage your drawdown income to ensure you don’t overpay tax on pension withdrawals
• Beware the pension lifetime allowance
  Even if your pension is below the lifetime allowance when you retired, excellent investment performance could push you above your cap by the time you’re assessed for the lifetime allowance at age 75
• Fees and charges
  Depending on your pension provider, there will likely be more fees and charges for pension drawdown than for an annuity
• Very small pension pots aren’t well-suited to income drawdown
  The risk of these running dry is far higher.

Getting Expert Pension Drawdown Advice

An expert pensions adviser can help you weigh up the benefits of pension drawdown and any potential drawbacks you might face if you choose to fund your retirement this way.

Although income drawdown isn’t the best pension option for everyone, in many cases getting professional advice can help cut some of the downsides that can arise if you opt for drawdown.

An adviser can be particularly valuable when it comes to helping you construct a balanced drawdown portfolio to boost the resilience of your pension investments against market downturns, as well as managing your pension withdrawals to ensure you’re not taking too much cash.

Your Financial Plan: Build A Better Future

A good financial plan can help you make the right decisions when it comes to your finances. Make the right decisions today to build a more prosperous future.

Good financial planning with clear goals can increase your retirement income by as much as 53%. Old Mutual Redefining Retirement Survey

Why Speak to Us…

We started Drewberry because we were tired of being treated like a number and not getting the service we all deserve when it comes to things as important as planning our finances. Below are just a few reasons why it makes sense to let us help.

• See your financial future
  We use sophisticated financial modelling technology to visually show you your financial future. A living financial plan where you can clearly see what you can achieve depending on the decisions you make – read more
• Achieve the retirement you deserve
  Can afford that dream round-the-world trip? Can you help your children onto the property ladder? We’ll model your goals and build your financial plan to help you achieve them.
• Our expertise saves you time and provides peace of mind
  Organising your pensions, investing your assets, managing risk and making the most of your tax allowances is all taken care of as part of your financial plan.
• We’ve got bargaining power on our side
  This allows us to negotiate better rates for you than dealing with providers yourself.
• You’ll speak to a dedicated expert from start to finish
  You will speak to a named expert with a direct telephone and email. No more automated machines and no more being sent from pillar to post – you’ll have someone to speak to who knows you.
• Benefit from our 5-star service
  We pride ourselves on providing a 5-star service, as can be seen from our 2386 and growing independent client reviews rating us at 4.92 / 5.
• Gain the protection of regulated advice
  You are protected. Where we provide a regulated advice service we are responsible for the decisions we help you make. Doing it yourself or going direct to a provider won’t provide this protection, so you won’t benefit from these securities.