Income drawdown following Brexit – why savers should act with caution…

Pension freedom reforms introduced last April prompted a surge in the popularity of income drawdown, which lets you take sums out of your pot while the rest remains invested.

However, the days of volatile markets and already low annuity rates following the referendum results announcement are being seen by some as a ‘stress test’ of longer term financial planning of many of those who have used pensions freedom rules to keep pension funds invested in drawdown plans.

According to the Association of British Insurers statistics, about 80,000 drawdown plans were purchased in the first 12 months of pension freedom with an average fund invest of £66,000.

A similar number of guaranteed income for life solutions, offering payments that aren’t affected by market volatility, were purchased with an average fund of around £53,000.

However, it is widely believed that Brexit has also had a negative effect on annuity rates – the income for life that you can purchase at retirement.

Some annuity providers have cut their annuity rates by as much as two per cent, although rates were falling prior to the referendum.

It is important that pension savers give careful consideration as to whether they are putting at risk money that they are relying on to underpin their living standards in retirement.

It is important to choose funds to invest in that match your income objectives and attitude to risk and set the income you want. The income you receive may be adjusted periodically depending on the performance of your investments.

There may be some complicated decisions to make which means it would be good sense to talk to an independent financial adviser who will have access to a raft of appropriate products.

For individual pensions advice contact Ben Morris on 01745 798260 or email ben@morrisfinancial.co.uk

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