Reducing risk

Preparing your pension savings for retirement

As you get closer to retirement, you need to consider how to turn your pension savings into an income - and how you can reduce the risk of your level of income falling.

There are four ways of turning your pension savings into an income. They are:

  • flexible income (drawdown)
  • guaranteed income (annuity)
  • taking cash from your pension, or
  • leaving it for now.

The investment option you chose may already provide a way of preparing your pension savings for retirement. For example, if you have invested in a lifestyle profile, it will gradually and automatically move your money into funds aimed at aligning your pension savings with your plans for retirement.

You should make sure any lifestyle profile you choose is appropriate for how you plan to take your retirement income.

It's also important to consider when you'll take your retirement income as lifestyle profiles make changes to your investments based on your selected retirement date. So they may only be suitable if you're planning to start taking your retirement income at your selected retirement date.

If you aren't sure whether a lifestyle profile is suitable for your needs, you should get financial advice.

However, if you haven’t invested in the low-involvement option, then you should consider when you need to start reducing your exposure to risk. This is because your money won’t be automatically moved into funds that prepare your pension savings for retirement.

Find out more about the Centrica Gateway Strategy

Why reduce risk?

As you near retirement, changes in the value of your pension can mean that the level of income you expect to receive from flexible income (drawdown) and guaranteed income (annuity) may be reduced.

If you choose to keep your money invested and take a flexible income, you need to remember that your investments may not perform as well as you expect them to – they can go down as well as up in value. You could also run out of money if you withdraw too much or if you live longer than expected.

The level of guaranteed income you buy can affect your income for the rest of your life. The cost of buying a guaranteed income will fluctuate, based on things like long-term interest rates.

So, as you approach retirement you may want to consider investing in a way that will reduce this risk.

When to reduce risk

As a general rule 5 to 15 years from your retirement date is considered a good time to start regularly reviewing your investments and reducing risk.

You should consider how you want to turn your pension savings into an income, the value of your pension and how far off your pension target you are. For example, if you’ve already reached your pension target you might want to reduce risk sooner.

However, you can choose to change your investments, or change how you plan to take income from your pension, at any time. If you’re unsure, then it’s best to get financial advice. There is likely to be a charge for this.