Approved Retirement Funds [ARFs], introduced by the Finance Act, 1999, were seen by many as freeing them from the ‘shackles’ of the annuity market. However, experience shows too many people arrive at retirement thinking that their years in decumulation will be just like their years in accumulation. They couldn’t be more wrong. Retirees must come to terms with a number of new realities.

Annuities are no longer for everyone. Only the wealthiest or the oldest retirees can afford to make a traditional annuity a large part of their pension planning because the cost of the guaranteed income they offer has simply become too high.

Your pension pot can live on long after you do. ARFs have allowed you to pass your pension pot on to the next generation.

How you manage the ‘big three’ risks will dictate the quality of life you enjoy in your old age. Your adviser can help you manage them:

 Longevity risk: The risk you live too long for your pension pot. To counter that, you need to take a view on your likely life expectancy and ensure the level of income you take won’t erode your pension pot.

 Inflation risk: This risk is the secret killer. It suddenly becomes an extremely destructive force when you reach retirement and stop making contributions to your pension pot.

 Sequence of return risk: The increased risk presented by a fall in returns coming early in your retirement as opposed to later down the line. This is not well understood by the average retiree because in the accumulation phase of your retirement planning, the order in which you got your returns never really mattered. The opposite is true for retirees in decumulation; once you start taking income you effectively cement any losses which can cause irrevocable long-term damage to the value of your pension pot.

There has never been a greater need for retirees to regularly engage with their advisers to ensure their retirement stays on track and their pension pot survives for at least as long as they do.