CAN YOU HOLD YOUR NERVE?
WHILE DRAWDOWN FUNDS TAKE A DIVE?
The FTSE 100 has not fared to well over the past ten months, in fact since April 2016 it has fallen by 15%, which means any income linked to the performance of the FTSE will have been detrimentally affected.
The Income drawdown scheme which is a way of using your pension pot to provide you with a regular retirement income by investing it in funds specifically designed and managed for this purpose, have been hit badly as they rely on a strong market to deliver good results. Drawdown funds values have seen their values fall by 8%
It is estimated that in the six months following the pension reforms, more than 40,000 drawdown plans were purchased but rather than reaping the rewards of savvy saving many find themselves waiting for the markets and pension values to recover before they dare to take any income.
The good news is most customers who took a drawdown will have a portfolio containing a mixture of bonds; equities and cash, which are estimated, to have performed slightly better.
To put these figures into perspective, if you had invested £100,00 in a mixed portfolio of assets (assuming an income of £5,571 which was equal to the annuity rate at the time of taking the drawdown fund) your pot would have fallen by 13% in nine months to just over £86,000
For many people who now have a fund valued at 90% of what it was a few months ago will be left feeling very uneasy about the future. Although the markets have a history of recovering, remaining calm while your funds ebb away is easier said than done.
The effects of the fall may find people looking for other ways to pay their bills, some have called this drawdown prison, rightly not wanting to crystallise losses.
Some people will be able to hold on while things return to normal however if you need the income then looking at the alternatives is essential, as you may find the yield from your investments may not be enough. If you want peace of mind it is no longer the case of choosing an annuity or drawdown, you may need to consider a mixture of both products, of course as with all financial decisions you should seek professional advice before making any decisions.
This blog was inspired by ftadvisor
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