Those still working are likely to be concerned about their current finances due to the impact of the Coronavirus pandemic, but experts are warning that those planning to retire soon could see a significant hit to their retirement income as well.
The markets have been very unstable in recent weeks in reaction to the announcements made by various Governments around the world, the closure of businesses and the growing rate of infection.
As a result, the value of a lot of pension pots, that are intrinsically linked to the markets, has gone up and down.
This means that those looking to dip into their pension pots using the existing freedoms as they retire should take extra care so as not to significantly reduce the value of their overall pension pot in future.
Around a million people in the UK are due to turn 55 this year and will, for the first time, be able to make use of the freedoms to make tax-free drawdowns of up to 25 per cent from their pension pot.
Individuals typically face one of three choices as they retire, either leave the money invested and withdraw money later, take some of the cash in chunks via the freedoms, commonly referred to as flexi-access drawdown, or seek a guaranteed income through an annuity. In many cases, they may employ all of these options within their retirement plan to meet their needs.
So far around £33 billion has been accessed by individuals using pension freedoms, which equates to around 4.4 per cent of the value of all private pension pots each year.
Experts are concerned, however, that those who choose to make use of the freedoms now may be exposing themselves to the unpredictability of the markets and may, therefore, be better off waiting for market values to rise again in future to ensure they do not deplete their pension pot.
Thankfully those who are further away from retirement or choose to keep money invested should see their funds recover value in future years once the markets stablise.
Here to Help
Considering the volatility of the markets, it is strongly advised that you seek independent legal advice before deciding to withdraw money from a pension pot or your other investments. To find out how we can help, speak to us.