Flexible drawdown option dependent on individuals’ risk appetite

Written by Talya Misiri

Opting for a flexible drawdown is dependent on individuals' lifestyle and risk appetite, it has been said.

Speaking on the last episode of BBC Radio 4’s Money Box, The Death of Retirement series, director of the Institute for Fiscal Studies Paul Johnson explained that choosing a flexible drawdown as a retirement income could be dependent on each individuals’ risk appetite.

Johnson said: “Flexible drawdown gives you all sorts of advantages in the sense that you don’t lock in, you’re not fixed in at a small three per cent return and you can take out different amounts at different times, but it really is about your own view, how long you’re likely to live, how much flexibility you want and how much risk appetite you’ve got.”

“How bad would it be if the stock market crashed and you have your savings in the stock market and you ended up with half as much money as you expected, compared with whether you could live on this three per cent and you prefer that certainty…. You, the individual, are taking all that risk”.

Also speaking on the show, former Pensions Minister Baroness Ros Altmann and Hargreaves Lansdown head of policy Tom McPhail discussed the uncertainties of retirement income amounts.

McPhail noted: “Because of uncertainties, [including policy change and inflation] we cannot give people guarantees that if you put in this much, you will get an income of that much in 30 to 40 years’ time. While final salary pensions [that promised a certain income at retirement] have become too expensive… what we can do is give you good, sensible guidance on what you may/are likely to receive.”

Further to this, the question of how can people plan for retirement if the rules change; for example the increasing state pension age, was proposed.

Responding to this, Altmann highlighted her sympathy with the Waspi women, adding “that’s exactly highlighting the problems that the government has in communicating with people, it’s all very well to put in new rules, but you need people to know about them, otherwise it terribly affects their lives.

“What’s crucial is two things, 1, if you’re going to make changes, you need to ensure that everybody knows about them, and 2, if you do make changes, and some people are seriously and negatively affected, you need to take account of that and maybe make some arrangements to help those who are struggling as a result.”

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