What are the best investments for my drawdown pension?
If you’re considering drawing down your pension to fund your retirement, you’ll need to consider the best place to invest your pension pot for your circumstances. Pension drawdown means your pension fund stays invested throughout your retirement and has opportunity for investment growth long after you make your first pension withdrawal.
How to choose your pension investments by risk…
Clearly some investments are riskier than others. These riskier investments do usually offer the potential for higher returns, but that also means there’s room for more significant losses as well. These investments can be volatile, with a lot of ups and downs. It may be that safer investments will suit you better, as there is a lower risk of loss. This could particularly be true if you have a smaller pension pot.
Ultimately, how you invest your income drawdown pension will be determined by your appetite for investment risk.
This will be determined by a number of factors, such as whether you have any income elsewhere (and whether this income is guaranteed) and how much money you’re planning to draw down from your pension.
We’ll also need to consider your life expectancy as this will cover how long you’ll be drawing on your pension for. With income drawdown there’s a chance you might outlive your pension and exhaust your pot before the end of your life. To mitigate this risk, a tool such as the Drewberry Pension Drawdown Calculator can provide you with an estimate of how long your pension might last.
When you choose Drewberry for pension drawdown advice, we’ll do a full investment risk questionnaire with you to determine the best balance of pension investments for your fund given your needs and risk appetite. This will impact the financial advice we’ll offer you on your pension.
Wealth & Pensions Expert at Drewberry
What should I invest my pension fund in?
You have a number of options for investing your pension fund. The main asset classes usually held as pension investments can include:
- Shares (in both UK and overseas companies)
- Permanent interest bearing shares or PIBS (a kind of security issued by building societies)
- Investment trusts
- Unit trusts and open ended investment companies (OEICs)
- Exchange traded funds
- Corporate bonds
- Government bonds and gilts
- Commercial property
Diversification is incredibly important when it comes to investing your pension. It’s true what they say – don’t keep your eggs in one basket. With pension drawdown, it’s better to spread your investments across asset classes.
This generally provides superior protection against market downturns compared to having all of your pension investments in one area.
Pensions & Investments Expert at Drewberry
Alongside choosing asset classes, you may also need to choose which geographic areas you’d like your investments to represent. UK, European, US, Asian and emerging markets are all categories you may need to choose from when investing your drawdown fund, especially if you’re looking to use your pension to buy shares.
Review Your Pension Investments Regularly
As time goes on, our needs inevitably change. If you access your pension at 55, the earliest age at which you can do so, it should be no surprise that the investments you choose then are unlikely to still suit your needs 20 years later at 75.
Reviewing your pension investments regularly makes sure you’re still comfortable with the level of investment risk you’re taking. Ideally, you’d do this at least on an annual basis.
As part of the flexi-access drawdown investment process, Drewberry provides quarterly drawdown portfolio refreshes to try and make sure everything continues to tick along nicely with your pension investments.
Wealth & Investments Expert at Drewberry
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Do I Need Financial Advice to Invest My Pension?
The answer is no, technically you don’t need financial advice for pension drawdown. Unless you’re transferring a final salary pension worth more than £30,000 into a money purchase drawdown arrangement, you won’t need to take drawdown pension advice.
However, given the wide array of investment freedom offered to you by income drawdown, and given that you’re embarking on an investment selection designed to help provide an income for the rest of your life, seeking professional pensions advice is highly recommended.
Getting financial advice can help you find the best pension investments for your circumstances. A good adviser will take your needs into account, as well as your appetite for investment risk, and use this data to build you a balanced drawdown portfolio.
This is a service the pension experts at Drewberry are happy to provide – for help and advice on income drawdown, just pop us a call on 02084327333.
Director at Drewberry