Can you follow a plan to make your pension pot last?

woman on a bike


MoneyPlus Features Team

4th December 2015 at 3:42pm

A report showing how you can make your pension pot last until you die has been published by Cass Business School.

Pension pots and how to survive them’ is well-timed. Pension freedoms giving everyone the chance to access their pension savings from the age of 55 landed in April 2015. This greater flexibility means many more people now have to make financial decisions which will have a huge impact on their retirement.

The biggest challenge many face, the Cass Business School report highlights, is making your pension pot last until you die. How can you make sure you’ll have enough money when life expectancy is increasing and you could be retired (or part-retired if you continue to work) for 20-30 years, or more?

The risk of running out of money is a very real one.

Factors affecting retirement income

‘Pension pots and how to survive them’ highlights a number of things that could affect people’s income during retirement. These include the level of pension savings, state pension entitlement, investment returns, other income and assets, life expectancy and health.

Then there’s the possible need for long-term care in later years and whether you want to pass pension savings to your loved ones when you die.

That’s a lot to consider.

Can your savings last?

Is there really a secret formula for making your pension pot last so that you can do all those things you planned when you finally have time?

The Cass report, looking at a plan for pension pots of £100,000 or more as an example, gives a number of suggestions including how to take an income from your pension, staying invested and taking steps to smooth out some of the fluctuations in the stock market.

It also considers when, and if, there is a right time to buy an annuity, pointing out that some could benefit from having a guaranteed income they’ll be able to rely on in their much later years.

But most people don’t have a pension pot anywhere near that size, and what is right for one person may not suit another’s circumstances.

It’s a balancing act

How you balance the sometimes competing needs of taking money out, keeping enough invested to last you, and leaving some for your family after you die (if that’s what you want) is a challenge.

As Gareth Trainor, Head of Investment Governance at Standard Life explains: “Most people need certainty around the income they need in the short term but to take enough risk to help their pension pot grow and last long enough.”


Tree of joy


“And how you’re invested, particularly in the early years of your retirement, can have a dramatic impact on how long your pension pot will last.”


In retirement things get more complicated, so you need a different approach to how you may have invested while you built up your pension pot. In fact, managing the volatility of your investments, especially in the early years, can be more important than the returns you achieve.

You can find out more about top tips for investing in retirement , including ‘The challenge of making your income last in retirement’.

Don’t pay too much tax

Finally, a hugely important consideration when you’re taking money out of your pension is making the most of tax efficiencies.

25% of your pension can be taken tax free, with the rest taxed as income. Take your money out over a number of tax years and you could keep more of your savings; take out a large, one-off lump sum or your entire pension in cash and you may pay too much income tax – much more than you ever thought. You can find out how to avoid paying too much in ‘Don’t pay too much tax’.

Read the in-depth Cass Business School report here.

Join the conversation and follow us on twitter @StandardLifeUK and Facebook.

A pension is an investment. Its value can go up or down and it may be worth less than you paid in. Investment returns aren’t guaranteed.  Past performance is not a reliable indicator of future performance. This blog and any responses are not financial advice.

The information here is based on our understanding in December 2015.