Rethinking your pension to feel secure in retirement

THIS month marks the 10th anniversary of pension freedoms, the radical shake-up of UK retirement rules that gave millions of people full control over their pensions.

- By Harvey Jones

In 2015, Chancellor George Osborne scrapped the obligation to purchase an annuity at retirement and let savers use their pots as a cash machine, taking lump sums or income from age 55, while leaving them to grow via drawdown.

Tom Selby, director of public policy at AJ Bell, said it was a huge shift that opened up a world of choice and flexibility at a stroke. "The reforms have been hugely popular, allowing retirees to design an income plan that fits their lifestyle," he said.

But with flexibility comes responsibility. While annuities paid a guaranteed income for life, savers now have to manage their pensions and investments to make sure their pot lasts as long as they do. Selby said this requires smart decision-making, and lists 10 questions to ask yourself.

1. Am I taking money too soon?

While you can start withdrawing from your defined contribution (DC) pension from age 55 (57 in 2028), that doesn't mean you should rush in.

"The earlier you start taking income, the longer it will need to last, and the less time your investments have to grow," Selby said.

If a 55-year-old with a £200,000 pension pot drew an annual income of £7,600, their pot might last until age 90. But if they delayed that until 65, and their pot grew at 4% a year during that time, it would be worth £274,000 when accessed.

"That would give them £13,300 a year until 90," Selby said.