The requirement to have drawdown reviews was removed in the 2015 pension reforms. However, reviews are an essential part of pension drawdown if you want to achieve the best results from your pension savings.
The previously required reviews dictated the maximum amount of income you could take from your drawdown plan and acted as a safety-net to provide an ongoing income. By abolishing the need for regular reviews, you are entrusted to withdraw as much or as little from your pension at any time.
How much can I afford to withdraw?
This is the key question. You don't want to take too much so that you risk running out of money later in life and you don't want to take too little so that you end up compromising your standard of living and leaving an unnecessary surplus in later life.
This is where cash flow modelling can be a highly effective tool to provide you with forecasts of your future retirement income and ensure you are not planning for a future shortfall or surplus. The analysis can include a number of 'what if' scenarios to test virtually any real life scenario. For example:
- How will my income be affected by a stock market crash?
- What will happen to my future income if I take a £20,000 world cruise?
- Can I afford to gift my investments to my children for Inheritance Tax purposes?
Your circumstances and external markets will undoubtedly change during your retirement and a host of factors can have an impact on how best you draw your retirement income. Health, age, marital status, holidays, stock markets, inflation and 'bank of Mum & Dad' are just some of the things that could impact your retirement income plans. Retirement planning is not just about investments!
We strongly recommend annual pension drawdown reviews where you update your cash flow model and can see how changes have and will affect your future income.