See into your financial future with our free drawdown planner.

Frequently Asked Questions

What is a safe withdrawal rate?

This is a critical question the nearer you get to the start of draw. Only sophisticated modelling can answer it reliably. It depends on how confident you need to be about sustaining spending in real terms year to year, and any time preferences, such as spending more earlier, less later. It depends crucially on how long the plan has to last, itself depending on the consequences of running short or running out. Those would be very different if, for instance, you had nothing else to fall back on and little capacity to adjust spending.

But the answer also depends on how you invest. Sustainability (both avoiding cuts and not running out) is a function of risk. Too much and you may run out if markets are unfriendly. Too little and you may not be able to spend at a rate you see as satisfactory. The Planner provides quantified answers specific to your personal timeline and the investment approach. You will use those answers to determine how much risk you want to take as well as how much to spend.

How should I use the flexibility drawdown offers?

Drawing down from a pension account gives you flexibility about when to start (as long as it’s not before age 55), how much to draw and when, and how to manage the draw between taxable income and tax free cash. But if your pension drawdown is part of a retirement plan including non-pension capital, you will apply the pension draw flexibility to managing both time preferences and your effective tax rate. This may include deferring pension draw to minimise taxes on death.

Flexibility brings choices and choices may call for advice. Advice costs money but it may come bundled with investment management costs you can anyway justify. When spending has to be funded out of your own resources, it is one of the most important management tasks you will face in life. Without management costs, can you be sure it will get the management it deserves?

Why are drawdown calculators limited to pension products?

If the only resources you had set aside to fund your retirement were in pension accounts, this would make sense. But it doesn’t describe everyone. Many have other savings in ISAs or taxable investment accounts or indeed non-financial assets that could contribute at some stage to spending. Not to mention State Pensions or final-salary pensions. Our Drawdown Planner is unusual in being holistic, not limited to pension accounts.

Nor is it even limited to retirement goals. Other drawdown goals include divorce and injury settlements or any investment goal where taking either income or capital from the portfolio is subject to sustainability requirements, such as a charitable endowment or life interest trust.

What should I expect to pay for drawdown?

Drawing down from a personal pension product usually attracts flat-rate charges from the pension provider in addition to the underlying investment charges levied by the investment managers. For most, the biggest cost is likely to be the advice fee but generally this advice fee is asset based and does not change when you move from the accumulation phase to the drawdown phase. Advice costs vary widely between firms, even for the same size of portfolio. You can see some survey data here, with our costs for comparison.

What kind of pension fund is best for drawdown?

Many but not all pension accounts offer drawdown. Not all workplace schemes currently support drawdown. This means auto-enrolment default funds can be appropriate for people during the savings phase but transfer to a different type of fund may be sensible at retirement.

This could be a Defined Contribution pension plan from, for instance, a life insurance company, or a Self-invested Personal Pension (SIPP) from a range of providers. If financial advice and portfolio management is being offered in conjunction with pension accounts to hold some of the underlying investments, a SIPP is likely to be preferred, due to the greater flexibility and the scope to reduce costs. The total cost is not necessarily a function of type. Some low-cost SIPPs are cheaper than auto-enrolment schemes.

It is likely that in time drawdown options will be more widely available, as will support for the choices that flexibility provides. Support could be integrated in the product, whatever the type, or take the form of standalone tools with the same modelling sophistication as ours. This is too big a task and too big a market not to see product development.

What are the best-performing drawdown funds?

Drawdown is a process not a product. The same products can be used for both the saving and withdrawal stages. The investment strategy may change because of the stage but the performance of the strategy will still depend on the underlying market exposures and their returns and, to a lesser extent, how good (or lucky) the investment manager. Charges will also affect performance but independently of the portfolio being used for drawdown.

Past performance (unlike charges) is not predictive of future performance so it is of no more value in a drawdown context than in any other context.

Should I consolidate my pensions?

If you have collected different Defined Contribution pensions from various employers over your working life, there are two good reasons for transferring them into a single scheme (be it one of the existing ones or a new one): lowering costs and increasing control.

Scheme costs vary and older ones in particular may carry high charges. If you care about the overall investment strategy, it will be easier to see it and control it if the money is in one place. Information about your pension, including projected outcomes, will then be simpler and clearer and paperwork minimised. It will certainly simplify drawdown, and transfer will anyway be necessary if any of your old plans does not support it.

Be sure you know before transferring any old plans whether they have any special benefits attached that you ought not to give up. Depending on the sums involved, that may warrant paying for independent advice, rather than relying on a company offering a pension consolidation service whose terms and conditions may limit their liability for checking.

Is drawdown for life?

No. You always have the option to use your remaining drawdown funds to buy an annuity. In fact, drawdown is best thought of as a process of deferring an annuity, possibly indefinitely. For many people, an annuity becomes a compelling choice in the later stages of retirement with some or all of the remaining fund, as there is limited scope then to take risk. Earlier in retirement, investment risk and inflation risk are more important for real spending outcomes than longevity risk. But in later years, longevity risk, as in the possibility of outliving your capital, tends to dominate other risk sources.