Where once most people, especially those with smaller pension pots, would have made the one-off decision to buy an annuity income guaranteed for life, pension freedoms mean now many more are reinvesting their nest eggs in the hope of higher returns while still drawing down an income from it - a move that needs a lot more thought.
“The advantage of drawdown is that it offers flexibility and allows people to change their investment strategy to meet their own circumstances, but it’s important they get advice on this to make sure they are making the most of their funds and are carrying out regular reviews,” Aegon's Ms Smith says.
“With greater choice comes the need for more knowledge and support for people when making important retirement decisions. They won’t want to run out of money in retirement due to a poor investment strategy.”
Mr Earl says he is educating clients on the potential long-term nature of retirement and explaining how long their money needs to last.
“This includes the possibility that it won’t if investments perform below expectations or they need to go into care,” he points out.
Full financial planning, including cashflow modelling, should facilitate a grown-up conversation about what’s available and test the impact of early death or ill health on the overall plan, says Ms Cardy.
“This should also help to test the impact of various market conditions on pension and investment portfolios and educate about investment risk and capacity for loss.”
For those without an adviser, either because they can't afford one or think they can go it alone just as well, the government has created three information services (soon to be merged into one) to help ease the path to retirement - Pension Wise, The Pensions Advisory Service and the Money Advice Service.
But the information they give is generic, and not tailored to the individual.
“These services all offer a great starting point by giving guidance but they can’t help make personalised recommendations, you really need a regulated financial adviser to do that,” Ms Smith says.
Mr Earl agrees: “Most individuals should, at the very least, take some formal advice in the lead up to retirement.”
laura.miller@ft.com
