Top tips for shopping around for flexible drawdown products

Adviser and client talking at table.

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We all want individuals who’ve saved for their retirement to make the best possible choices when it comes to what to do with their hard earned savings. Since April 2015, those with defined contribution plans including personal pensions have a much wider range of choices. The financial regulator, the Financial Conduct Authority (FCA), has also carried out a ‘Retirement Outcomes Review’ to find ways of helping customers get the best outcomes, particularly where they decide to ‘go it alone’ rather than seeking professional advice.

Before 2015, most individuals purchased an annuity to turn their pension pot into a regular income for life. Many still do and the FCA is looking at how pension providers can encourage those approaching retirement to shop around and get the best deal from across all providers, not just the provider they’ve been saving with. Once an individual has decided on the type of annuity they want (for example level or increasing each year, payable on their life or continuing to a surviving spouse) it’s relatively easy to find out through an online comparison website what different providers will offer allowing for age and health status. They can then pick the highest rate.

But if an individual decides they would prefer the flexibility that a ‘flexi-access drawdown’ plan offers, comparing between the offerings of different providers is more complex. It’s not about comparing a ‘rate’ – there are many different features to consider and some may be more important than others to any individual.

The FCA is some way from coming up with any answers to how customers can shop around for drawdown products. These are my top tips on features to look out for.

  1. A good range of investment funds – if you opt for drawdown, you’re keeping your funds invested so it’s important the provider offers a comprehensive range for you to choose from allowing you to decide how much risk you’re prepared to take. Remember investments can go down as well as up and you may get back less that you invested.
  2. High quality fund managers – having a range of funds to pick from is important, but so too is getting good investment performance. The higher the returns within your risk appetite, the longer your money will last.
  3. Flexibility over income you take – one of the key benefits of this product is being able to adjust your income from time to time as your personal circumstances or income needs change.
  4. Option to choose guarantees – some providers offer you the option to pay extra to guarantee some or all of your income will continue as long as you live however the stockmarket performs.
  5. Access to advice – you may decide to seek professional advice and some products allow you to pay for that out of your pension pot.
  6. Online digital access and ‘what if’ – this allows you to keep track of how much your pot is worth and to check how long your pot is likely to last if taking different levels of income.
  7. Competitive charges – the level of charges at the start and on an ongoing basis will affect how much you’ve left in your pot.
  8. Provider regulated by the FCA and Prudential Regulation Authority – this makes sure you’re with a firm that is well managed and financially sound.

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