For many people approaching retirement, there is a sense of dread when it comes to navigating the rules about accessing their pensions.

Pension drawdown has grown in popularity since 2015. It enables savers to take a tax-free lump sum from their defined contribution pension, but keep the remainder of the money invested to provide an income during retirement.

Currently, three times the number of savers are opting for drawdown plans than those who are buying annuities, according to the Financial Conduct Authority.

However, it is vital that retirees understand the risks. A few wrong moves and over-55s could be left with next to no income in later retirement — or it could be that they are too cautious and surrender having a comfortable later life when they do not need to.

According to Tom Selby, senior analyst at AJ Bell, there are risks associated with all retirement income routes, but drawdown is a particularly complicated system to navigate due to the variety of risks and the flexibility that is on offer.

“Arguably the biggest danger in drawdown is to people who plough on regardless of any investment hits and just hope for the best,” Selby says. “You need to be flexible and prepared to adjust your income in order to ensure your strategy remains sustainable.”

So what exactly do savers need to look out for when accessing their pots?

Risky business
One of the biggest risks with drawdown is running out of money. Savers can exhaust their pot more quickly than expected if they take income at an unsustainable rate, have insufficient growth from their assets or experience “sequence of return” risk — where market falls and heavy withdrawals early in a person’s retirement limits the longevity of their funds.

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