What is Income Drawdown?

For those with larger pension funds or a significant amount of other assets, alternative routes for pension income are available. These plans could offer you the ability to retain some form of investment control over your pension and flexibility on your income levels.

To effect an Income Drawdown Plan, you would generally transfer your existing plan to a new provider’s Personal Pension Plan or Self Invested Personal Pension Plan. This type of plan allows you to select a level of required income between a minimum and maximum amount. There is no current minimum and you could therefore decide you do not require an income, whereas the maximum is 100% of GAD. This is roughly equivalent to 100% of a single life level annuity for your current age.

If you wish to take a lump sum from your pension income, this must be taken up front. The remainder of your fund is then invested in a portfolio of funds. These will be discussed with your Retirement Consultant and a portfolio will be selected in line with your accepted attitude to risk and income requirements. Your income levels are required to be reviewed every 3 years under current legislation. It would be beneficial, however, to review your plan every year to ensure that your investments remain in line with your requirements and current market conditions.

The review requirements changed on 6th April 2011, to 3 years from the previous 5 years.  This will apply to existing contracts taken out before this date from the next review date, or if a drawdown to drawdown transfer takes place, the earlier of 12 months from the date the switch took place or the scheduled review date (if earlier).

The death benefits available under Drawdown are much more beneficial than those available under Annuity purchase. Current legislation allows the following death benefits from a Drawdown plan:

• Return of fund less a 55% tax charge
• Continuation of Drawdown to spouse/dependant
• Annuity Purchase for your spouse/dependant

Please be aware that the higher the income you choose to take from this type of plan, the higher the risk you are accepting. The income you choose to take may not be sustainable from your pension fund and your pension fund may be eroded. The value of your remaining pension fund can rise and fall dependent upon the performance of the underlying investment funds.

To arrange a meeting or discuss your options further, call us now on our FREE helpline 0808 1787 335.