The investment return earned on your savings during your retirement can be a prime determinant of the income you receive.

There is a double-edged danger here – if returns are too low then the income you can derive from your pot may be too low but if you seek higher returns to get a better income you inevitably expose yourself to more investment risk.

A key reason why annuities appear to many people to offer a poor return from their capital cost is that annuity providers are required to invest in bonds which deliver very secure but low investment returns. The annuity provider guarantees an income and takes on all the investment risk.

If at retirement you do not buy an annuity but plan to keep your retirement savings in a pension scheme , perhaps through some form of draw-down arrangement, then you will still be exposed to investment risk.

Consider a person who on retirement left their pot invested and drew down an income from their pot of one twenty-fifth of its initial value. The following scenarios can be plotted: 

1.  2% investment return net of all charges 

    (a) Their pot lasts for 33 years but income is severely depleted by inflation in later years

    (b) If they increase their annual withdrawal in line with inflation the pot will only last for 25 years

2. 5% investment return net of charges

    (a) If they increase their annual withdrawal in line with inflation then their pot will last for 43 years

    (b) If they increased their initial withdrawal level by one third then their pot would last about 25 years

This indicates that to achieve better outcomes, than what an annuity might provide, a member needs to consider leaving funds invested in assets which have the potential to yield higher returns but which inevitably involve more risk.

Members should beware of the Danger posed by pension scams where they are approached with offers of high returns on their pension savings. Fraudsters will target naïve investors with offers that no pension fund would consider investing in. Advice on how to spot and avoid a pension scam can be found on