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Pension Income drawdown

Have more control over your income level and frequency of payment

Pension income drawdown is just one alternative to purchasing an annuity policy when you are eligable to take benefits from your pension pot.

You can decide to start drawing income from your pension pot as soon as you are eligible to start taking benefits. You are also entitled to take the 25% tax free lump available (under current legislation).

Income drawdown gives you more control over how much income you want to receive and when you want to receive it, moreover, frequency and amounts of income you draw from your pension pot can be changed. This leads to you having more control over your pension pot investments whilst taking benefits. Normally the investments available to pension accounts are also available to income drawdown accounts.

Some useful facts about pension income drawdown

• You do not have to stop working to drawdown your pension fund
• You do not have to put all your pension fund into drawdown
• You can split your pension fund into drawdown and an annuity policy purchase
• After you have elected to pension drawdown you still have the option to purchase an annuity policy at a later date
• You can continue to drawdown your pension for as long as you are able to
• Upon your death your spouse can continue to take income from your income drawdown account or simply commute what remains into an annuity. There is also the option to leave the remaining fund as a lump sum, but there are tax implications that make this option one that needs serious consideration.

The two main types of income drawdown accounts are,

Capped drawdown

Capped drawdown, as its name suggests, restricts the amount of income you are able to draw each year from your pension pot. These limits are set by government legislation.

Flexible drawdown

Flexible drawdown does not restrict the amount of income you can take from your pension pot. However, you must meet the Minimum Income Requirement (MIR) as set by government legislation and have stopped contributing to all pensions.

Risks

Having control over your pension pot gives you the responsibility of its investments and the associated investment risk. It is important you seek financial advice as your investment horizon may not be far enough to recover any losses your income drawdown account may or may not incur. One important consideration is in order for you to achieve a higher income from income drawdown than what would have achieved had you opted to purchase an annuity will more often than not require you to invest in equities. Equities carry investment risks that you will need to understand and decide whether you are prepared to risk your pension pot with such investments.

Income drawdown is far from straight forward. Let us help you make the right decision. We are happy to bear the cost of your initial consultation giving you the chance to ask us questions on how you can make the right decisions for you.