Decisions to make for drawdown investors

Retirement pots are being affected by global events

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Pensioners drawing an income from their retirement pots will be nervously watching on as global turmoil sends stock prices swinging.

Drawdown allows retirees to leave money invested while taking income as required, but recent volatility is putting that concept to the test.

Tom Selby, director of public policy at AJ Bell, says your decision will partly depend on your situation. If you have already started withdrawing money, make sure that income remains sustainable.

“Making big withdrawals when markets are down backfires - it will make a bigger hole in your pot and lock that money out of market recovery,” Tom explains. “If your investments have taken a hit, you may need to reduce the amount you take out of your pot so you don’t run out later.”

Maike Currie, personal finance expert at PensionBee, says if drawdown investors can live off the natural income from their investments, such as dividend yields or cash holdings, it will stop them having to sell investments at depressed prices.

She adds: “When the market dips, this means you can use these cash savings, and withdraw less from your pension.”

At some point, drawdown investors may wish to use their funds to buy a lifetime annuity for a guaranteed income for life.

Selling equities in a market dip means you will have less money for that annuity, and will get a lower rate of income.

If the oil price drives inflation up, annuities could pay more which may be a reason to delay buying, but it's risky second-guessing markets in this way.

For those who already have an annuity, their income should continue for life, regardless of what happens in the Middle East.