Pension Drawdown
Pension drawdown, also known as income drawdown, can provide you with a way to take an income from your pension fund while it remains invested.
There are two types of pension drawdown- capped drawdown and flexible drawdown. Whether either option is right for your needs will depend on your individual circumstances.
How does capped drawdown work?
The amount that you take as an income through capped drawdown scheme can be anywhere from 0% to up to 100% of the limit set for your age by the Government Actuaries Department. This limit will be reviewed every three years up to when you reach the age of 75 and then annually from your 75th birthday onwards.
How does flexible drawdown work?
Flexible drawdown works in a similar way to capped drawdown, except that there is no upper limit to the amount that you an withdraw. Flexible drawdown is only available to those that meet the government Minimum Income Requirement (MIR). The MIR currently stands at £20,000pa, and is the amount that you must already be receiving from an alternative registered pension source, such as state pensions, pension annuities, final salary pensions or scheme pensions.
Changes to the law:
Unsecured Pension Funds and Alternatively Secured Pension Funds are currently being phased out as the pension drawdown options and they're being replaced by capped drawdown and flexible drawdown pension options. Anyone already in an an unsecured or alternatively secured scheme will have to move into a capped or flexible drawdown scheme, when this happens for you will depend on your individual pension arrangements.
The age limit for buying an annuity has also been abolished which means that you may remain in drawdown indefinitely should you wish to do so.
Pension drawdown may allow you to retain greater control over your pension fund and investments, but there are certain risks associated with taking the process of drawdown, such as the possibility of tax penalties for other beneficiaries if you are still in drawdown when you pass away. An independent pension advisor can offer impartial, tailored advice on pension income options that may be suited to your needs.
Tax Free Lump Sum:
You are entitled to take up to 25% of your pension fund as a tax-free lump sum on retirement. You may also have the opportunity to combine a number of funds such as those from personal and occupational pension schemes into a single pension drawdown plan.
Independent Pension Drawdown Advice:
Pension drawdown is not appropriate for everyone and you should always consider all your options before proceeding with any one retirement plan. A member of an independent pension advice team can guide you through your options.
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