Income Drawdown¬†or Pension Fund Withdrawal is now known as Unsecured Pension. Under normal circumstances we would expect your fund to be ¬£50,000, after you have taken your tax free lump sum.
Pension Commencement Lump Sum.
This allows you to take 25% of your fund as a tax free lump sum without buying an annuity.
The balance of the money (75%) remains invested in a ‚ÄėPension Bank Account‚Äô. We will discuss your attitude to investment risk with these funds and suggest a suitable portfolio of investments / funds for you.
You can draw an income from the bank account each year, but you do not have to take any income if you do not want to. You have the choice to turn this income on and off like a tap if your circumstances are changing. The maximum income available is roughly equivalent to 100% of the best annuity available.
In the event of your death there are 3 options:-
- Your spouse or dependent could use the fund left and buy an annuity.
- Your spouse or dependent could use the fund and draw income from it.
- The fund could be paid as a lump sum to anyone you choose, after a 55% tax charge.
To be considered suitable for drawdown, it would¬†normally be expected that you would be content to invest some of your funds in equities such as stocks and shares. This is because they have generally provided the higher investment returns over the longer term, and this allows your fund the opportunity to outperform the guaranteed income that would have been paid from an annuity.
Your eventual pension income will depend on how your fund grows, how much income you take out of your fund and the level of annuity rates in the future.
Because you are not locking yourself into an annuity and the choices you make when arranging an annuity, in terms of when you think you or your spouses may die, this is an opportunity to benefit from increased flexibility as your circumstance change in the future.
Every¬†3 years until age 75 the fund is reviewed and the maximum income limit is reset. Again, this will depend on GILT rates (linked to interest and annuity rates), your fund size and your age at that time.
Income Drawdown is a complex area of retirement planning and isn't suitable for everyone. Please seek financial advice before proceeding.