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Reviewing a drawdown pension - a ten point plan

We explore how our 'do it yourself' drawdown clients are managing their pensions, plus we reveal our 10 point plan for keeping on top of your drawdown objectives.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

In drawdown you need to be prepared to regularly review your account – you can’t just sit back and hope it runs itself. We’ve created this simple ten point plan to help remind existing and potential drawdown investors about what’s involved, and what they should be doing when managing a drawdown plan.

Remember you’re in charge of your own withdrawals and where you invest, but income in drawdown isn’t guaranteed. All investments can rise and fall in value so, if your investments don’t perform as you’d hoped, you could make a loss. Taking large withdrawals could also mean you run out of income sooner than planned. This is why actively managing your plan is so important.

If you’re unsure about investing or if drawdown is right for you, you should seek personal advice.

1. Review your income objectives

It’s vital to think about your current situation when drawing an income from your drawdown pension.

When pension freedoms first hit, the industry braced themselves for a drawdown shaped catastrophe. But the reality is completely different. The fears were that people would take too much income too soon, leaving themselves with nothing left for their full retirement.

Thankfully our drawdown clients have shown they’re taking their time to properly consider a sensible withdrawal strategy, with only 40% drawing an income straight away, 40% waiting at least six months and 24% wait at least a year.

Make sure you review your income withdrawals when your circumstances change. For instance, you might need to withdraw more income because you’ve reduced your hours at work. Or you might be able to temporarily stop your regular income payments because you’re receiving other sources of income elsewhere. Whatever the reason, just make sure your situation now isn’t too different to the plan you made when you started drawdown. And if it is you’ll need to adapt your plan appropriately.

2. Review the sustainability of your income withdrawals

Make sure your pension will last for as long as you need it to. You can check how long your pension might last by using our drawdown calculator. It can help you decide what income withdrawals might be sustainable and see how different growth rates can have an effect on your pension.

DRAWDOWN CALCULATOR

3. Check the performance of your pensions investments

We all know the saying ‘knowledge is power’, so get clued up on your investments. Read up on what investment brokers have to say about the funds you hold. You can also compare performance to similar funds. You can typically find this information on most fund factsheets. We also offer share insight and fund research which could help.

4. Find out the cost of your investments

Cheapest doesn’t necessarily mean the best, but make sure you know what you’re paying for the investments you hold. It’s likely you’ll incur a charge from your pension provider as well as a cost for the investment itself. If you have an HL SIPP or Drawdown account, you can find a full list of charges here.

5. Check your investments are still right for your objectives

It’s important that your investments match your goals and attitude to risk. Make sure the investments you hold are still fit for purpose. The types of investments you might choose for growing your pension are likely to be different to those you might choose if you plan to draw an income.

For instance, if you need an income from your pension you could look at investing in income funds which pay a high dividend. Remember though that all investments can fall and rise in value and income is variable and not guaranteed. You could get back less than you invest.

6. Rebalance your investments

It’s also vital to rebalance your investments regularly. If you’re holding several different investments in retirement it’s likely that they’ll have grown at different rates and so may be out of kilter. So when it comes to revisiting your portfolio make sure the balance you want is still what you’ve got.

7. Get a free annuity quote

When you’re in drawdown you’ve still got the option to use some or all of the money in your pension to buy an annuity. This will provide you with a secure income for the rest of your life. Annuity rates are always changing so it’s worth getting an up to date quote to find out how much secure income you could get- plus it won’t cost you a thing. Make sure you plug in all your health and lifestyle details when you get a quote, it could mean you get a higher income. The older you are the more income you’re likely to get too. Remember annuity rates change regularly and may go up or down in the future. Your quotes will be guaranteed for a limited time only. Once set up an annuity cannot normally be change so it’s important to consider your options carefully.

An annuity purchase doesn’t need to be all or nothing either, you could use just part of your drawdown pension to buy an annuity to make sure you’ve got some secure income to cover your essential bills. Our online annuity service enables you to compare quotes from across the market in minutes. Request your quote now to find out how much secure income you could get.

REQUEST QUOTE NOW

8. Review your rainy day money

We’ve always been told to stash some cash away for a rainy day and it’s the same in drawdown. You could think about having at least 3-6 months’ worth of expenses held as cash plus an amount to cover any spending you plan to take from capital over the next five years.

On top of this you might want to have a bit extra to fall back on. But how much depends on how you’re taking an income from your pension. If you’re only withdrawing the income produced by your investments, maybe add an additional year’s worth of income. If you’re drawing on capital, you could make it 2-3 years’ worth of income. You don’t necessarily have to hold this extra cash in your pension, just in a savings account you’ll have easy access to. Everyone’s circumstances are different so it’s important to think about what is right for you.

9. Monitor your pension

With HL you can track your pension 24/7- not that you’d want to, but keeping an eye on your pension more regularly can help you avoid any nasty surprises.. It won’t make you immune to poor investment returns but it could enable to you make changes before it’s too late.

And there’s no time like the present. If you have an account with HL why not check in on your hard-earned pension fund?

CHECK MY HL PENSION

10. Check your beneficiaries are up-to-date

Review who you’ve told your pension provider that you’d like to benefit once you’re gone. Your nomination isn’t binding, but gives the trustees of the pension an idea of your wishes. If you have an account with HL, you can update and amend your nomination online. Alternatively, if you’d prefer, you can return an Expression of Wish form to instruct us of any changes.

DOWNLOAD FORM

It’s also worth considering appointing a power of attorney if you have not done so already, so someone can look after your affairs if you can’t. This is particularly relevant for drawdown as it can be managed until late in life. You could develop health conditions which mean you’re no longer able to manage your own account. For instance, in the UK one in fourteen people over 65 have dementia, which could prevent them from managing their finances. If your account is with HL, you can give us details of the power of attorney to be held on record.


Stick to the plan

It’s all well and good to review your account now using this plan, but you need to commit to reviewing it regularly. Doing it as a one off won’t be enough. You should look to review your account at least once a year, and whenever your circumstances change.

Questions for an expert?

If you have any questions and need more information to make your own decisions about your pension or retirement our Helpdesk is always happy to help and is available six days a week on 0117 980 9926. Monday-Thursday 8am-7pm, Friday 8am-6pm and Saturday 9:30am-12:30pm.

What you do with your pension is an important decision. We strongly recommend you understand all your options and check that the option you choose is right for your circumstances. Take advice or seek guidance if you’re unsure.

The government provides a free and impartial service to help you understand your retirement options - more on Pension Wise.

This article isn’t personal advice. We offer a range of information and support to help you plan your own finances. We also have an award-winning advisory service that can help you achieve your goals.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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