Tax and pensions
Mr Daems also gets asked "what about tax?" by clients.
This is understandable: many people do not necessarily realise pension contributions are tax-free on the way in and taxable on the way out, or the tax treatment that will be imposed on their fund if they wish to drawdown more than the current annual tax allowance each year, or if they wish to commute the entire sum into cash and withdraw it at once.
Added to this are the various rules around how pension pots can be passed onto a beneficiary.
Under current regulation, if the pension fund holder dies before age 75, a beneficiary can inherit some or all of the fund as a lump sum, or income from drawdown, tax free, up to the value of the lifetime allowance (which has been reduced from £1.25m to £1m).
The government's website has a useful breakdown of the way in which pension death benefits work within a taxed environment.
Can I afford to do drawdown?
Mr Budd says another issue that crops up with clients is whether to erode capital by doing drawdown, and if so, by how much.
From a client's point of view, he comments: "I engage a financial planner, and I have instructed him that if he does his job properly, the moment I draw my last breath is the moment the last penny leaves my account."
For Mr Budd, that means as a financial planner, the right thing for him to do is to help the client with their decumulation strategy by working out the retirement they can afford, assuming they spend or give away all their money.
But even if a client does want to go into drawdown, Mr Long says there are many subsidiary questions about this particular path that advisers are often asked.
He cites the following:
- What is the difference between drawdown and uncrystallised funds pension lump sum (UFPLS)?
- Can I take the tax-free cash and leave the remainder?
- Can I just take part of my tax-free cash (TFC) rather than the whole 25 per cent TFC?
- Where can I invest my drawdown pension?
Is there lifestyling?
Some clients who are approaching their retirement date need to understand whether the lifestyling features of their workplace fund are going to be suitable for a drawdown world.
Neil Adams, head of pension planning for Drewberry Wealth, comments: "When it comes to decumulation, auto-enrolment schemes typically have 'lifestyling' built in.
"This shifts your investment strategy automatically as you get older, to better align with your needs as you get nearer to drawing your pension."
He says while traditional lifestyling was always geared towards individuals buying an annuity, increasingly lifestyling with drawdown in mind is becoming more available.
"Our experience", says Sean McSweeney, corporate advice manager for Chase de Vere, "is that as people approach retirement, their biggest concern is a lack of understanding about how much income they will need and how long they will need it for.
