Phased drawdown to the rescue
One of the great strengths of phased drawdown is the flexibility it can give to you in retirement planning, as we've pointed out before. This can be particularly important in an emergency, as Jill Smith discovered.
Jill and Dave Smith had children relatively late into their married life. After his 55th birthday, Dave had taken early retirement and started to draw income from his pension in order to devote himself full time to the care of their children, who were then aged 10 and 12. Jill then became the main breadwinner.
Tragically, within three months, Dave died suddenly. This left a bereaved Jill, aged 56, alone to bring up the two children. They were her main concern, so she gave up her own job to devote herself to them, but this meant she had no income, apart from certain benefits. She and Dave had no savings.
We looked at Jill's options with her. As bringing up the children was her number one priority, it was decided that she should use flexible drawdown to get early access to her pension to support the children for the next 10 years. She will use high levels of income, combined with tax reliefs to get the most out of her and Dave's pensions. This means using her pension pot much earlier than she had anticipated and making heavier withdrawals than planned, so she is aware that she is going to run out of money in about 12 years.
However, when Dave died, Jill downsized her home to leave herself mortgage free and when the children leave home, she'll downsize again to release another £200,000. She is also in line for an inheritance from Dave's mother and the nature of her work is such that she can return to it and continue working as long as she's healthy. Also, if her circumstances change for the better, flexible drawdown leaves the option of slowing down the rate at which Jill has to call on her funds.
We also advised Jill on careful budget management, as Dave had been the one who had managed their financial affairs. We had to give careful consideration to the widow and childcare benefits Jill was entitled to, as drawing down too much of her pension would have affected her entitlement to these. The drawdown facility was flexible enough to allow us to do that.
It's always worth remembering a retirement plan is just a plan and, as such, it has to be capable of adapting to dramatically changed circumstances. Phased drawdown allows that capability.
It is important that no actions should be taken without first taking advice. Personal circumstances and an individual's appetite for risk means that the advice for one person may not be the same for everyone. The information in this blog or any response to comments should not be regarded as financial advice. Reeves do not advise on Defined Benefit pension schemes. Reeves do introduce a third party specialists in areas of work we do not cover. Please note: This article has been published with the use of a fictional character to outline a case study.