There are various political and economic arguments as to why this is necessary, but as a retiree you should be at least aware, and possibly concerned about the negative impacts of this policy.
Whether you are approaching retirement and looking to purchase an annuity or enter income drawdown (capped drawdown), the factors that are likely to influence your retirement income are the same.
Firstly there are those you have no control over:
- Your current age, sex and marital status
- Your health
- The level of pension and other retirement savings you can afford to make
Then there are those that are influenced by the larger economic and political environment:
- Current interest rates, in particular the investment returns provided by government bonds (gilts)
- The level of investment return your pensions can expect to achieve
- For those considering capped drawdown, the maximum permitted level of income is set by the Government Actuarial Department (GAD)
We are in a “perfect storm” where each of the above factors has been negatively impacted. Recent rule changes took nearly 20% off the maximum withdrawal permitted (GAD), and quanitative easing continues to force gilt yields down. Investment performance is very much governed by the type of investments held, and to a lesser extent by the quality of investment management – highlighting the importance of adhering to a financial plan, and reviewing the investment mix appropriately.
But the news is not all negative – there are more choices available to retirees than ever before; both flexible drawdown and scheme pensions allow those that have built up personal retirement funds to have greater control than ever before, but many older style pensions do not offer the full range of retirement solutions. Enhanced annuities, for those in poorer health may help mitigate some of the above negative factors – these retirement options did not exist ten years ago.
Alistair Cunningham is a multi-award winning retirement planning specialist and would be happy to discuss your retirement options in more detail. We bear the cost of an initial telephone conversation, and by the end of this discussion we would give you an indication of the options available to you, and the likely cost of our advice.