(Please note - Income Drawdown is a complex and constantly changing subject and the information provided here reflects the current situation. For more information call us today or complete our short enquiry form and we'll be pleased to help you further.)
Traditionally, when the time came to retire, most people with defined contribution (DC) pensions (usually where the same amount is paid in each month), either used their whole pension fund to buy an annuity or used the remainder to do so after taking their entitlement to tax free cash (normally 25% of the fund). They did so because they either didn’t qualify for income drawdown, were too cautious to accept the associated investment risk or were reluctant to pay the tax bill they would incur if they withdrew the whole pension pot in one go.
Since income drawdown was introduced some years ago, anyone of retirement age with a DC pension has been able to take income directly from their pension fund without needing to buy an annuity. Now, with the introduction of new 'income drawdown' rules, anyone with a DC pension and age 55 or over, can use income drawdown to provide the income they need in retirement. Pension savers who are currently in a capped drawdown can move out of that arrangement whenever they choose.
How income drawdown works
Rather than exchanging your pension savings for an annuity (a fixed and regular income for life paid by the pension provider) the pension fund is left invested and you draw income directly from the fund. As the bulk of your pension remains invested the fund is still able to benefit from any growth (or not!) in the value of its investments. There’s no limit to the amount of income you can withdraw — you can draw as much (or as little) as you like, even the entire fund if you want.
And unlike an annuity, in a drawdown arrangement the pension saver keeps their pension pot.
Tax implications
Although you can withdraw up to 25% of your pension fund tax-free, anything else you withdraw from your pension pot will be treated as income and as such subject to the marginal rate of income tax.
Considerations
Income drawdown plans are a higher risk than a secured income arrangement such as a pension annuity, as the underlying assets of the fund are usually invested in the stock market. To ensure the pension fund does not run out of money, the member will require investment advice and regular reviews.
Some income drawdown products can be expensive in terms of charges, although they normally vary between 2% and 4% a year.
It’s also helpful if you have some experience of managing investments.
Please note we provide advice not a facilitation process, if you engage us for services we will assess your suitability and we may deem that a drawdown is not suitable for your needs, in which case we will not recommend this.
A PENSION IS A LONG TERM INVESTMENT, THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY DEPEND UPON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES AND TAX LEGISLATION.
INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM TAXATION, ARE SUBJECT TO CHANGE.
HIGH INCOME WITHDRAWALS MAY NOT BE SUSTAINABLE.
TAKING WITHDRAWALS MAY ERODE THE CAPITAL VALUE OF THE FUND, ESPECIALLY IF INVESTMENT RETURNS ARE POOR AND A HIGH LEVEL OF INCOME IS BEING TAKEN. THIS COULD RESULT IN A LOWER INCOME WHEN THE ANNUITY IS EVENTUALLY PURCHASED.
ANNUITY RATES MAY BE AT A WORSE LEVEL WHEN ANNUITY PURCHASE TAKES PLACE. TAX PLANNING ADVICE ISN’T REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.
(Please note - Income Drawdown is a complex and constantly changing subject and the information provided here reflects the current situation. For more information call us today or complete our short enquiry form and we'll be pleased to help you further.)
Traditionally, when the time came to retire, most people with defined contribution (DC) pensions (usually where the same amount is paid in each month), either used their whole pension fund to buy an annuity or used the remainder to do so after taking their entitlement to tax free cash (normally 25% of the fund). They did so because they either didn’t qualify for income drawdown, were too cautious to accept the associated investment risk or were reluctant to pay the tax bill they would incur if they withdrew the whole pension pot in one go.
Since income drawdown was introduced some years ago, anyone of retirement age with a DC pension has been able to take income directly from their pension fund without needing to buy an annuity. Now, with the introduction of new 'income drawdown' rules, anyone with a DC pension and age 55 or over, can use income drawdown to provide the income they need in retirement. Pension savers who are currently in a capped drawdown can move out of that arrangement whenever they choose.
How income drawdown works
Rather than exchanging your pension savings for an annuity (a fixed and regular income for life paid by the pension provider) the pension fund is left invested and you draw income directly from the fund. As the bulk of your pension remains invested the fund is still able to benefit from any growth (or not!) in the value of its investments. There’s no limit to the amount of income you can withdraw — you can draw as much (or as little) as you like, even the entire fund if you want.
And unlike an annuity, in a drawdown arrangement the pension saver keeps their pension pot.
Tax implications
Although you can withdraw up to 25% of your pension fund tax-free, anything else you withdraw from your pension pot will be treated as income and as such subject to the marginal rate of income tax.
Considerations
Income drawdown plans are a higher risk than a secured income arrangement such as a pension annuity, as the underlying assets of the fund are usually invested in the stock market. To ensure the pension fund does not run out of money, the member will require investment advice and regular reviews.
Some income drawdown products can be expensive in terms of charges, although they normally vary between 2% and 4% a year.
It’s also helpful if you have some experience of managing investments.
Please note we provide advice not a facilitation process, if you engage us for services we will assess your suitability and we may deem that a drawdown is not suitable for your needs, in which case we will not recommend this.
A PENSION IS A LONG TERM INVESTMENT, THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY DEPEND UPON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES AND TAX LEGISLATION.
INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM TAXATION, ARE SUBJECT TO CHANGE.
HIGH INCOME WITHDRAWALS MAY NOT BE SUSTAINABLE.
TAKING WITHDRAWALS MAY ERODE THE CAPITAL VALUE OF THE FUND, ESPECIALLY IF INVESTMENT RETURNS ARE POOR AND A HIGH LEVEL OF INCOME IS BEING TAKEN. THIS COULD RESULT IN A LOWER INCOME WHEN THE ANNUITY IS EVENTUALLY PURCHASED.
ANNUITY RATES MAY BE AT A WORSE LEVEL WHEN ANNUITY PURCHASE TAKES PLACE. TAX PLANNING ADVICE ISN’T REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.
When someone talks about savings and saving money, it could be referring to a piggy bank or a high interest deposit account. Savings are effectively cash or cash instruments
Wealth, just like your health, must be carefully preserved. Your assets need to be protected against the potential threats of erosion by taxation, the effects of inflation and investment risks.
When you retire you still need food and shelter as an absolute minimum, but of course you will want to maintain the lifestyle to which you have become accustomed
The main purpose of Life Insurance is to provide money for those people who may depend on you financially, in the event that something should happen to you.
Most of us face being taxed on our income, our capital gains, and in some circumstances the value of our estate when we die. Taxation can be very complicated and the rules, reliefs and allowances
Professional Financial Planning is the process which aims to help you realise your ambitions - whatever they may be. As professional financial advisers we can help you make informed decisions
