Drawdown Pensions - your experiences during 2020 and intentions in 2021?

thriftytracey

Hi,
I'm interested to hear of the experiences of recipients of pension drawdown and how they got on in 2020 and intentions for 2021?

Both myself and my husband have Royal London drawdown products and I retired in May 2019 (aged 59) and started drawdown as my only source of income.  My husband has a smaller pension drawdown also with Royal London but also a DB pension.  He is due to receive the State Pension in March 2021.

In March we received a call from our IFA to advise that our funds had lost about 20% due to Covid and to advise us to stop drawdown.  This was quite a substantial loss of income.  We still had my husband's DB pension.  I immediately went through all our SO and DD and cancelled discretionary ones.  We were able to save into a Holiday fund from his DB so we stopped this and drew it as additional income.  It represented 50% of our former income drawdown and we managed, discretionary spending helped by lockdown.  It wasn't great but we did not starve.  Thank heavens for his DB pension.  Otherwise it would have meant drawing down our modest savings.

During this period I checked the value each week and gradually it increased until by the end of September was £5k short of pre-Covid levels.  I asked the IFA to start drawdown again for three months, October to December and to stop it in January 2021 not knowing how Brexit would affect the values.  I decided to stop checking it every week as it was making me anxious and just check it once a month.  I've checked it today and £5k down as per September's value which was encouraging.

As we will probably going into another national lockdown shortly I intend not to draw down and we still don't really know the effects of the Brexit deal on investments.  I am hoping to start drawing down again in March or April when the vaccine will be more widely rolled out which may also give the markets an uplift.  If not, then by then we will start to receive my husband's state pension which will provide us with some discretionary spending.  Our risk profiles are cautious.

When you decide on drawdown we are made aware that there may be periods where we have to stop drawdown.  I never thought it would be so soon!  I have had thoughts of converting to an annuity but rates are poor and lost on death (unless widow(ers) pension selected) which drives down the income.

BritishInvestor

thriftytracey said:

Hi,
I'm interested to hear of the experiences of recipients of pension drawdown and how they got on in 2020 and intentions for 2021?

Both myself and my husband have Royal London drawdown products and I retired in May 2019 (aged 59) and started drawdown as my only source of income.  My husband has a smaller pension drawdown also with Royal London but also a DB pension.  He is due to receive the State Pension in March 2021.

In March we received a call from our IFA to advise that our funds had lost about 20% due to Covid and to advise us to stop drawdown.  This was quite a substantial loss of income.  We still had my husband's DB pension.  I immediately went through all our SO and DD and cancelled discretionary ones.  We were able to save into a Holiday fund from his DB so we stopped this and drew it as additional income.  It represented 50% of our former income drawdown and we managed, discretionary spending helped by lockdown.  It wasn't great but we did not starve.  Thank heavens for his DB pension.  Otherwise it would have meant drawing down our modest savings.

During this period I checked the value each week and gradually it increased until by the end of September was £5k short of pre-Covid levels.  I asked the IFA to start drawdown again for three months, October to December and to stop it in January 2021 not knowing how Brexit would affect the values.  I decided to stop checking it every week as it was making me anxious and just check it once a month.  I've checked it today and £5k down as per September's value which was encouraging.

As we will probably going into another national lockdown shortly I intend not to draw down and we still don't really know the effects of the Brexit deal on investments.  I am hoping to start drawing down again in March or April when the vaccine will be more widely rolled out which may also give the markets an uplift.  If not, then by then we will start to receive my husband's state pension which will provide us with some discretionary spending.  Our risk profiles are cautious.

When you decide on drawdown we are made aware that there may be periods where we have to stop drawdown.  I never thought it would be so soon!  I have had thoughts of converting to an annuity but rates are poor and lost on death (unless widow(ers) pension selected) which drives down the income.

"and to advise us to stop drawdown."
I'm not entirely clear why. It might be worth understanding what your IFA would do if the markets had prolonged falls such as those experienced in the 70s. Does your adviser specialise in retirement planning or is he more of a generalist?

"Our risk profiles are cautious."
For many people, risk means portfolios falling too much in value during volatile markets. However, in retirement, the biggest risk might be you outliving your portfolio. Has your adviser discussed how much risk you need to take in order for this not to happen?
20% falls for a cautious risk profile sounds quite large.

Audaxer

What type of funds are you invested in - does it include dividend paying funds or is all drawdown coming from sale of capital, or is it a mixture of both? Although there have been dividend cuts due to Covid, most equity income funds, and especially ITs, have still been paying dividends, so I would have thought your drawdown income would not have needed to be totally suspended. Ideally it is also a good idea to have a couple of years worth of cash to drawdown as income in difficult times.

dunstonh

I'm interested to hear of the experiences of recipients of pension drawdown and how they got on in 2020 and intentions for 2021?

Nothing happened in 2020 that really affected drawdown decisions.  However, a number of investors did return £x to their S&S ISAs or back into the pension as they found they had not spent as much as usual due to lockdowns cancelling holidays and far less discretionary spending.
Nothing is happening in 2021 that requires any changes unless personal circumstances require it.

In March we received a call from our IFA to advise that our funds had lost about 20% due to Covid and to advise us to stop drawdown.  This was quite a substantial loss of income. 

That is disappointing.  Not the loss level but the lack of cash fund to cover short term loss periods.     We usually do 18-24 months held in cash as that will cover the majority of negative periods (only the extreme events will usually be outside that).

An alternative option, which we didn't utilise with anyone but some out there would have done is to reduce their draw so it remains equal or lower than 3.5% of their revised values.   (some may have a different tolerance on their maximum draw rate).  

When you decide on drawdown we are made aware that there may be periods where we have to stop drawdown.  I never thought it would be so soon! 

Any event that could happen can happen now, tomorrow, next month, next year, next decade.  You never know when.  You should always plan on the basis of an event happening sooner rather than later.  Especially after a prolonged growth period.

 Our risk profiles are cautious.

For the period in question, a 20% loss seems quite high for a portfolio described as cautious.   Although the wording is not consistent with different risk scales.   So cautious can mean different things to different people.  I would have placed it more around 15% from peak to trough.   20% is more in line with cautious to moderate.

cfw1994

BritishInvestor said:

thriftytracey said:

Hi,
I'm interested to hear of the experiences of recipients of pension drawdown and how they got on in 2020 and intentions for 2021?

Both myself and my husband have Royal London drawdown products and I retired in May 2019 (aged 59) and started drawdown as my only source of income.  My husband has a smaller pension drawdown also with Royal London but also a DB pension.  He is due to receive the State Pension in March 2021.

In March we received a call from our IFA to advise that our funds had lost about 20% due to Covid and to advise us to stop drawdown.  This was quite a substantial loss of income.  We still had my husband's DB pension.  I immediately went through all our SO and DD and cancelled discretionary ones.  We were able to save into a Holiday fund from his DB so we stopped this and drew it as additional income.  It represented 50% of our former income drawdown and we managed, discretionary spending helped by lockdown.  It wasn't great but we did not starve.  Thank heavens for his DB pension.  Otherwise it would have meant drawing down our modest savings.

During this period I checked the value each week and gradually it increased until by the end of September was £5k short of pre-Covid levels.  I asked the IFA to start drawdown again for three months, October to December and to stop it in January 2021 not knowing how Brexit would affect the values.  I decided to stop checking it every week as it was making me anxious and just check it once a month.  I've checked it today and £5k down as per September's value which was encouraging.

As we will probably going into another national lockdown shortly I intend not to draw down and we still don't really know the effects of the Brexit deal on investments.  I am hoping to start drawing down again in March or April when the vaccine will be more widely rolled out which may also give the markets an uplift.  If not, then by then we will start to receive my husband's state pension which will provide us with some discretionary spending.  Our risk profiles are cautious.

When you decide on drawdown we are made aware that there may be periods where we have to stop drawdown.  I never thought it would be so soon!  I have had thoughts of converting to an annuity but rates are poor and lost on death (unless widow(ers) pension selected) which drives down the income.

"and to advise us to stop drawdown."
I'm not entirely clear why. It might be worth understanding what your IFA would do if the markets had prolonged falls such as those experienced in the 70s. Does your adviser specialise in retirement planning or is he more of a generalist?

"Our risk profiles are cautious."
For many people, risk means portfolios falling too much in value during volatile markets. However, in retirement, the biggest risk might be you outliving your portfolio. Has your adviser discussed how much risk you need to take in order for this not to happen?
20% falls for a cautious risk profile sounds quite large.

Those falls do sound high: I have funds split between cautious and "high risk" - the high risk ones fell 20%, the low risk around 10%.   Then climbed back.   & in the past 7 weeks or so, gain 10%....

We will likely enter drawdown next May - I imagine there will be plenty of dips and peaks in the (hopefully many!) years ahead.
Don't use an IFA, so won't be relying on that kind of help.....but if I see things drop dramatically, I might reduce drawdown, or indeed perhaps invest some of the drawdown money on the basis that it would have a decent chance of rising faster later!

[Deleted User]

As an absolute minimum, I would have your 2021 income needs in cash or money market funds right about now.  Having to make drawdown decisions on a month to month basis depending on market volatility sounds like a recipe for poor sleeping patterns. 

[Deleted User]

Also, a traditional “balanced” 60/40 stock/bond portfolio had the maximum drawdown of 20% but it recovered quickly. 

TadleyBaggie

I use an IFA, prior to the CV market dip I was drawing down 4.5% pa, on advice I dropped this to 4%. My pot is now back to the pre-CV levels but I will stay at 4%. My year-on-year growth is around 6.7%.

BritishInvestor

TadleyBaggie said:

I use an IFA, prior to the CV market dip I was drawing down 4.5% pa, on advice I dropped this to 4%. My pot is now back to the pre-CV levels but I will stay at 4%. My year-on-year growth is around 6.7%.

Has your adviser discussed the possibility of having to make some major adjustments if markets/inflation is less favourable in the future?

Albermarle

I suspect from the OPs comments that they have a portfolio rather too biased towards the UK .
This would explain the big drop for a cautious portfolio and the fact that it is still down . Typically most low/medium risk pension funds are a few per cent up on the year. Also would explain the excessive worrying about the effect of Brexit , as someone invested more globally would not be concerned about Brexit particularly.

Prism

I am also wondering if there is too much UK focus. I have a medium risk portfolio was around 70% equities and the rest bonds and cash. It dropped 13% in March and then recovered by the end of April. If I had needed to make a withdrawal in March or April it could have come from the cash or bond element without loss.