Gloucestershire IFA: Independent financial services brokers based in Cheltenham offer lifetime financial planning and wealth management

Pension Income Drawdown - Is it right for me?

With an ageing population and the first of the 'baby boomer' generation hitting retirement, one thing is certain - over the next 15 to 20 years the retirement market is going to be a growth area. When you couple this growth with an increasing demand for flexibility and choice, it's safe to assume that the current retirement landscape is going to change.

Annuities are historically a very popular option in retirement, with a great many looking to the security that they provide, but Income Drawdown (also known as Unsecured Pension) is also worth considering.

Benefits
Income Drawdown, or unsecured pension, is a more flexible alternative to the traditional annuity route, offering greater choice and control for many people. Clients can delay buying an annuity and instead withdraw a regular income from their pension fund while the remainder of the fund stays invested and under their control. While the fund remains invested, the client can benefit from growth in the market and from our ongoing advice.

So when might it be suitable?
Those aged between 50 and 75 (55 and 75 from April 2010) can set up a Drawdown contract.
It could be suitable if the individual:

Wants to vary their income over time to reflect changes in their circumstances
Wants their pension fund to continue to benefit from potential investment growth and are prepared to accept the risk that the value of the fund may fall
Is not solely dependent on this pension income
Wants to maximise the benefits their family receives on their death and also give them the maximum choice about how they receive these benefits
Wants to control the time at which they buy an annuity

Income Drawdown can be a valuable retirement planning tool for the right person. Typically it suits those who are not averse to investment risk, and who have larger pension funds. However, there are no guarantees that income will be greater than if the fund was used to purchase an annuity at retirement.

There is also no guarantee that the initial income level selected can be maintained. The costs of income drawdown are normally higher than for an annuity and such arrangements suffer from 'mortality drag' - as they do not benefit from the cross subsidy that applies to an annuity purchase because some annuitants die relatively early.

These notes ("Pension Income Drawdown - Is it right for me?") are intended to provide a general appreciation of the topic and it is not advice. Guidance should be sought from a specialist like ourselves who is qualified to advise in your specific circumstances.

For more information on Personal Pensions, please contact Cheltenham Independent Financial Advisers Limited on 01242 269656 or email us at info@cheltenhamifa.co.uk. One of our advisers will be happy to assist you.