How to avoid running out of money in retirement

Local independent financial adviser, Steve Embrey of LG Embrey Financial Planning looks at how people can avoid running out of money in retirement:

Savers who start taking pension cash without getting advice are making potentially harmful decisions and could run out of money in retirement.

This is the warning from the Financial Conduct Authority (FCA) who are concerned that many people are dipping in to take a 25 per cent tax-free lump sum after turning 55 despite not intending to retire yet, then making poor investment moves with the rest of their pots.

Income drawdown has become a popular way of funding retirement, and keeping savings invested is now more common than buying an annuity that provides a guaranteed income for life.

But, as many savers shun financial advice, or find it unaffordable, and are taking a DIY approach to buying drawdown plans, the FCA is currently weighing up new protections for over-55s using pension freedoms.

New ‘default’ income drawdown plans and a cap to prevent people paying ‘excessive charges’ for them are being considered, and could emerge in proposals due out by the summer.

The watchdog is concerned about people switching retirement pots into current or savings accounts and letting them get gobbled up by low interest rates and inflation, or becoming liable for income tax.

Meanwhile, some 37 per cent of savers entering income drawdown are buying these plans off the shelf, and taking risks with their savings as a result, the FCA has found in a new study of the market.

The following bullet points highlight what they consider is potentially harmful behaviour by savers:

* Already making the decision to enter drawdown before contacting their pension provider

* Not being open to exploring the full range of options available to them

* Charges are not always being consistently highlighted, notably when people are varying the terms of a drawdown contract

* Comprehensive information about charges and investment returns (annually or otherwise) is not always provided when customers take a 25 per cent tax-free lump sum and no immediate income, so they can’t review their decision and decide whether it still meets their needs

* Information about valuable guarantees attached to pensions is not being disclosed, meaning customers could give them up without fully understanding their benefits

* Documents about shopping around for the best product are not being sent before a sale is made, though the FCA notes this information is generally signposted elsewhere or mentioned in phone conversations.

* Drawdown products are being sold online or over the phone, but hard copies of the relevant information is not being sent at the right time, creating the risk of customers not understanding the consequences of what they were doing

If you have concerns about your pension or are looking for an independent appraisal or help starting a pension, contact Steve Embrey on 01743 382002 or email