How to manage drawdown during the pandemic

This article is part of
Guide to pensions after the pandemic

How to manage drawdown during the pandemic

Individuals approaching retirement are certain to be experiencing a worrying time, and for those who are in a position to do so, might be considering delaying their retirement.

This option gives more time to rebuild the pension pot, more time to benefit from employer contributions and less time in retirement for the pot to last.  

As Steve Webb partner at pensions consultant LCP explains, for those at state pension age, each year of deferral adds 5.8 per cent to the rate of pension when it comes into payment. 

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Mr Webb adds: “For those who have recently retired, it is not unusual for people to partially 'un-retire' and do some paid work if it is available. This may have many advantages and can help soften the blow of a fall in drawdown pots. 

“For those well into retirement for whom going back to work is not an option, keeping drawdown withdrawal rates under regular review is vital, and some providers offer tools to help work out what a sustainable rate would now be.”

Alternative income source

Another option could be to dip into cash savings first.

Claire Trott, head of pensions strategy at St James’s Places says: “If you can, you should try to avoid taking money from your investments during periods of volatility. 

“If you can reduce your level of pension withdrawals or even put them on hold for a while. It could be better to dip into cash savings, rather than sell investments you might hold outside your pension plan. The more you can leave invested, the more time it has to hopefully recover.

“Alternatively, if you are currently taking your annual income requirements as a lump sum, consider changing to a monthly or quarterly withdrawal to reduce the risk of realising capital during this market trough.

“If you’re eligible to start drawing it, your state pension could also provide some income without the need to sell investments.”

At Royal London Lorna Blyth, head of investment solutions says the firm has been seeing an increase in the number of customers who are deferring taking income or reducing the amount of income they had originally planned to take.

She adds: “Withdrawing money from investments when markets are down means there is less invested and so you will benefit less when the markets do recover.” 

Pete Glancy head of policy at Scottish Widows says: "In order to take money out you will need to sell units in your investments and if the prices are low, you will need to sell a higher number to get the desired amount.

"This means that there will be fewer units later that you can use to take more income or buy a guaranteed income for life. If you can’t afford to wait you should therefore consider only taking as much as you need short-term."