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Pension Drawdown – Are Women Worse Off Than Men?Written on April 25, 2018 by Kirk Rice LLP

Pension Drawdown – Are Women Worse Off Than Men?

There has been much media comment about recent pension research that says women are worse off than men. Is it unsurprising when there has been a well-documented gender pay gap for many years giving men more opportunity to save? This article looks at how this might affect pension drawdown.

In retirement prior to 2015, most pension money was converted into a guaranteed income for life which often made the situation even worse for spouses.  Most people bought a pension annuity that would only provide 50% of the income after their death for their spouse or dependant.

Since the introduction of Flexi Access Drawdown very few people choose to buy a guaranteed income for life. Most people now remain invested with money at risk, drawing from the fund as they need it, which means on their death, any remaining money is available to their spouse or dependant.  Potentially this means that the income does not need to drop by 50% on the first death.

Pension drawdown carries the risk that the investment value could fall, and that any income might have to cease due to the money running out in your lifetime.  Longevity statistics show that women will outlive men on average, so it is very important to consider how to avoid running out of money in retirement.

If you buy an annuity to provide guaranteed income for your lifetime, you never need to review the arrangement and cannot change it. Whereas drawdown requires ongoing attention.

Once drawdown starts you need to regularly review your income needs and your investment strategy. At some date in the future annuity rates may be as high or better than the expected investment return, and it may not be sensible to continue in drawdown. Annuity rates rise with age and when interest rates rise.

When you buy an annuity with pension money (after you have taken your tax-free cash entitlement) you will pay income tax on the income once it starts. If you go into a drawdown arrangement you do not have to withdraw your tax-free cash at once; you could take part and leave the balance until another time; you could be paid a monthly income out of your tax-free cash or in combination with taxable payments. This often makes it possible to manage exposure to the higher income tax bands.

Drawdown provides everyone with much opportunity and flexibility to suit their own circumstances that was never available to many prior to 2015. Therefore, it is important to make time to review your pension options carefully and engage with an experienced professional for help to understand what can be achieved for you.

If you are interested in discussing whether pension drawdown is right for you, please telephone Michael Powell on 01344 875 000 or email info@kirkrice.co.uk.

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Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made. The information is based on current tax legislation which may change in future.