Pension Freedom 

Delivering the goods for clients

  • To understand how income drawdown works
  • To learn about sequence of returns risk
  • To learn about how to make the right choices with income drawdown
Delivering the goods for clients


Income drawdown used to be the preserve of the affluent who already had a reliable income from other types of pensions and could afford to take a risk with a pension pot that stayed invested in stock markets.

Now it has become much more mainstream, following the advent of pension freedoms, and the ability to do much more with one’s pension pot. In some respects, those accessing their pension are all doing some kind of income drawdown, whether that be taking tax-free cash, or finding a product that allows regular access to cash while staying invested in the market.

The challenge for many advisers, and their clients, is finding the right product that will last until the end of their life, and sometimes this means taking a blended solution, with a combination of annuity and drawdown.

The challenge with drawdown is to work out the balance between taking the right amount of money out and keeping enough invested so the pot does not run out too soon. One of the biggest risks is sequence of returns, the risk that a market downturn occurs early on while withdrawals are high and impacts the longevity of the pot.

The best way to manage this is to invest in smoothing returns funds, for example, or top up some cash in the fund during the good years, and stopping drawdown when returns are negative.

Income drawdown has become a challenging area to advise on, and is easy to get wrong. At the very least the situation needs regular monitoring, as the economic climate, client’s situation and annuity rates change.

The changes brought about by pension freedoms have had a huge impact on the industry, and have mixed up the options available to people when they come to retire. This has provoked a big response from the asset management and life industry, who see an opportunity for providing new products that people can use for retirement.

But the reality is that many people choose to use a blended solution – picking and choosing a variety of annuity, and mixing it with a drawdown product.

For the client there are plenty of products to choose from and retirement in the context of pension freedoms has become the biggest area for advisers.

But get it right, and advisers will have done their duty to their clients.

Melanie Tringham is features editor of Financial Adviser

In this special report

  1. According to Billy Burrows which of the following NOT needed to be taken into account when arranging a suitable drawdown plan?

  2. According to Billy Burrows why is taking tax-free cash just a holding exercise?

  3. According to Billy Burrows, the lower levels of sustainable income of 3 per cent is adequate for most people, true or false

  4. According to Billy Burrows, what is the sequence of returns risk?

  5. When is the cashflow model more effective, according to Fiona Tait?

  6. According to Billy Burrows, price should be the main driver of a drawdown product, true or false?

Nearly There…

You have successfully answered all the questions correctly, well done!

You should now know…

  • To understand how income drawdown works
  • To learn about sequence of returns risk
  • To learn about how to make the right choices with income drawdown

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