Pensions

Income Drawdown

When you reach retirement, you can purchase an annuity or enter into income drawdown via Capped Drawdown or Flexible Drawdown. You can take up to 25% of your fund as a tax-free cash lump sum and leave the remainder of your pension fund invested for capital growth.

In the meantime, you can take income as and when you need it from the fund; subject to certain Inland Revenue limits. However, you are not obliged to take any income at all if you do not need it.

Whilst you do not lose the right to purchase an annuity, you are no longer obliged to purchase an annuity in the future either.

Potential Advantages Of Income Drawdown

Income Drawdown enables you to defer the annuity option for as long as you wish, so that you don’t need to make an immediate decision about spouse’s, civil partner’s or dependent’s benefits.

You can vary income to meet your personal requirements and manage your tax situation.

There is a possibility of benefiting from a higher annuity rate if a lifetime annuity is eventually purchased , either through a general increase in rates or simply by the member now being older.

Death benefits are flexible in format and can be left to a wide range of beneficiaries.

There is the potential to benefit from investment growth of the underlying fund.

Potential Disadvantages Of Income Drawdown

If you did decide to purchase an annuity in future you could find that annuity rates have decreased.

The fund may reduce in value due to poor investment performance or may be eroded due toinvestment returns not keeping pace with the level of income withdrawals.

For this reason we always recommend Income Drawdown schemes are reviewed at least annually.

 

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