Demystifying the options available to you at retirement and ensuring your savings last a lifetime.

When considering how to make the most of your pension at retirement, the key thing is to have a complete picture of your expenditure now and your expected expenditure requirements in the coming years, including holidays, cars and property.

It is also important to be realistic about how long you may live.  Given advances in medicine, we work on the assumption that people will live at least to 100 years.  This may seem ambitious, but for planning purposes it is better to be prudent rather than potentially run out of funds in retirement.


One of the options is to use your pension fund to purchase an annuity.  Annuities provide a guaranteed annual income either for the whole of your life or for a fixed period of time.   The cost of an annuity will depend on several factors, such as whether you choose to include provision for your spouse or partner, and whether you opt for an increasing level of annuity.  The more additional options you include the more expensive the annuity, (i.e. the amount of annuity you can purchase with your pension fund is lower).

Income Drawdown

An alternative and more flexible option to purchasing an annuity is income drawdown.  Income drawdown is a recent development which allows you to withdraw either a regular income or lump sums from a pension fund, as and when you need it.  This usually means leaving your pension invested for longer, which may lead to additional investment growth.

An additional benefit of income drawdown over annuities is that it allows any remaining pension fund to be inherited after death.

However, with this option the biggest risk is 'pound cost ravaging', this is the name given to withdrawing income from an investment in a falling market which can have a negative effect on the value of your investment or pension.

It is therefore vital that anyone who is considering income drawdown should appoint a financial adviser to monitor and review their pension fund and the amount of income withdrawn, to ensure that they do not run out of money in retirement.

Case Study - Meet Annabel and James

Annabel and James have private pension assets of £270,000 and were looking to retire, but did not know how to make best use if their pension fund, or how much income they would need.

Firstly, we examined their expenditure to understand what is deemed 'core' expenditure, such as household bills.  It was established that Annabel and James needed £2,000 per month to cover these everyday costs.  In addition, they also wanted to travel during the early years of retirement.

Next we reviewed their pensions to understand the options available from their existing arrangements, as well as how much state pension they will receive.

James was entitled to a full state pension of approximately £155 per week, however Annabel did not receive the full amount having taken time out of her career to raise children.  In total, they were entitled to £261 per week state pension.

To provide income security in retirement, Annabel and James decided to buy an annuity with part of their pension funds, to provide additional guaranteed income of £1,650 per month, indexed linked.

With the remaining pension fund of £120,000, they opted to place these funds into a flexi-access income drawdown pension contract and withdraw an annual income of 3.5%.