Taking your tax-free drawdown? Beware the savings shortfall!
Pension savers are being warned not to neglect their pension pots after taking an initial tax-free lump sum, as tens of thousands leave themselves open to a savings shortfall in retirement.
Zurich has warned that as many as 115,000 savers risk leaving themselves short of funds in retirement if they fail to proactively manage their pension fund after taking an initial lump sum.
Those who draw a lump sum from their pension generally deposit the rest of their savings into annuities or invest-and-drawdown products. Research has shown that 44% of savers who had accessed funds in this way while continuing to work intended to leave their remaining balance “untouched and unchanged” until retirement.
Analysts have warned against this so-called ‘zombie drawdown’, and say the failure to actively manage the remaining pension pot balance can lead to significantly reduced funds building up for retirement.
Savers are advised to have regular reviews with your financial adviser and to continue these after drawdown of any lump sums. Regular monitoring of your pension funds allows your adviser to respond to changes in your circumstances as well as movements in the market, and make sure your funds are ready to help you make the most of your retirement.