Drawdown, annuity, and the sequencing decisions that determine how long the money lasts.
Turning a pot into an income that lasts
Building a pension and drawing one are different problems. While saving, a bad year is an opportunity. In drawdown, a bad year early on can permanently reduce what a pot will ever pay — the same average return, arriving in a different order, produces a different outcome. Retirement advice is largely about that risk: how much to take, from where, in what order, and what to do in the years when the answer is to take less.
Typical matters
Who we act for
People at or approaching the point of drawing benefits, those weighing drawdown against an annuity or a combination of both, and people already in drawdown whose withdrawal rate was set years ago and never tested.
Speak to an adviserIn more detail
In accumulation, falling markets help: the same monthly contribution buys more units, and time repairs the damage. In decumulation that reverses. Funding withdrawals from a falling market means selling more units to raise the same income, and those units are not there to participate in the recovery.
This is sequence risk, and it is the most underrated danger in retirement planning. Two people can retire with the same pot, experience the same average return over twenty years, and end in completely different positions — because one of them had the bad years early.
Rules of thumb circulate about safe withdrawal rates. They are a starting point and a poor stopping point, because they average over histories and ignore the specific person: how much of the spending is essential, whether there is other income, whether withdrawals could be reduced in a bad year without real hardship.
Flexibility is worth more than precision. A plan that can cut discretionary withdrawals temporarily survives sequences that a fixed withdrawal does not. So the number is less important than the answer to a different question: what is the plan when markets fall by a third in year two?
Drawdown keeps the money invested, keeps flexibility and keeps whatever is left for a family. It also keeps the risk. An annuity converts a pot into a guaranteed income for life, removing both the risk and the flexibility, and removing the fund from the estate in most forms.
Presented as a binary it is a poor decision. In practice the useful question is how much guaranteed income is needed to cover the spending that cannot be reduced — the housing, the heating, the food — with the remainder left invested and flexible. Covering essentials with something guaranteed means a market fall affects holidays rather than necessities, which changes how it feels as well as how it works.
Most people reach retirement with money in more than one place: pensions, ISAs, general investments, cash. They are taxed differently, treated differently on death, and the order in which they are drawn can change the total tax paid over retirement considerably.
There is no single correct order. It depends on the sizes involved, other income, the inheritance tax position and how long the money has to last. It is worth planning deliberately rather than drawing from whatever is most convenient, which is the default and is rarely optimal.
Before we speak
The spending question is the one people find hardest and it matters most. An approximate split between what you must spend and what you would like to spend is worth more than precise figures for either.
If you have none of it
People often delay a first conversation until they have assembled a file. That delay costs more than the missing paperwork does. Tell us what you know, and we will work out what needs finding — and in what order.
Speak to an adviserPlain English
The words that turn up in this area, written for people who are not lawyers — because that is who has to make the decisions.
Common questions
It depends on the size of the pot, your other income, how much of your spending is essential and how long the money must last. The useful output is not a single number but a rate tested against poor markets, reviewed annually.
Not automatically. Taking it starts a clock on what happens to the rest, can affect what you may contribute afterwards, and moves money from a tax-privileged environment into one that may be less so. Worth modelling before acting.
They have been unfashionable, which is not the same as poor value. An annuity buys certainty, and certainty is worth more to some people than to others. The case is strongest for covering essential spending.
That is precisely the risk the plan should be built to survive. The usual defences are holding some planned withdrawals in cash so you are not forced to sell, retaining the ability to reduce withdrawals temporarily, and covering essentials with guaranteed income.
Generally yes, though drawing flexibly can restrict what you are able to contribute afterwards. If continuing to contribute matters, check the position before taking anything.
Check your forecast and your National Insurance record — gaps can sometimes be filled, and it is worth knowing before assuming the full amount. It forms the guaranteed floor that everything else sits on top of.
Important
The value of a pension and the income it produces can fall as well as rise. What you get back is not guaranteed and depends on investment performance, charges and how long the money has to last.
The value of investments can fall as well as rise and you may get back less than you put in. Past performance is not a guide to future performance.
Tax treatment depends on your individual circumstances and may change in future. Statements here describe the rules as they generally apply, not advice on your position.
How it works
A call at our cost to understand what you are trying to do and tell you plainly whether we can help. Sometimes the honest answer is that you do not need advice at all, or not yet — and we would rather say that than bill you for finding out slowly.
Before any work starts you get the scope, the approach, who will do the work and what it will cost, in writing. Independence means we are paid by you rather than by a provider, and you should be able to see exactly what you are paying and for what.
A written recommendation you can read, question and keep, setting out what we suggest and why — including the options we rejected. Then a review at agreed points, testing the plan against what actually happened rather than restating it.
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