Who should consider income drawdown?

The financial regulator the Financial Services Authority (FSA) regards income drawdown as a complex product and strongly recommends that pension investors seek professional advice about it. If you are in any doubt at all about reaching this decision on your own you should consult a professional adviser.

It is important you understand the biggest risk of income drawdown. That is your fund could be significantly (if not completely) eroded in adverse market conditions, or if you make poor investment decisions. This will in turn lead to a lower (perhaps no) income in retirement.

In addition, if you draw the maximum income available, your investments will need to work harder to maintain the value of your pension. Lower-risk investments may struggle to keep pace with the income you withdraw, while higher risk investments could mean the capital will be subject to large fluctuations. The investment returns may be less than those shown in your personal illustration.

Charges and inflation can also affect the relative value of the fund. This means that anyone considering income drawdown needs a significantly more adventurous attitude to investment risk than someone buying a lifetime annuity.