Income Drawdown

Income drawdown or pension fund withdrawal is an alternative to purchasing an annuity.  It enables you to access the lump sum from your pension, and also to make income withdrawals, whilst remaining invested and thus benefiting from any investment returns.

There is no minimum amount you have to withdraw, but there is a limit on the maximum, which is essentially 20% more than the best standard single-life annuity rates available.

We find that people generally use income drawdown for one or more of the following reasons:

• To access their lump sum without taking any income
• To control their income year by year, possibly for tax reasons
• To maximise the amount of income available
• To ensure a lump sum is available on death

This arrangement can continue up to age 75, although reviews every five years are required to ensure that the fund does not deplete excessively; this can result in a significant reduction in income at the review.  At age 75 it is possible to continue the drawdown concept, but the maximum allowable income reduces, and there is a minimum level which has to be taken; this is known as Alternatively Secured Pension.

It is important to note that with income drawdown there are additional costs and risks involved compared with buying an annuity straight away. Because the bulk of your fund remains invested in the stockmarket, growth is not guaranteed, and the value of you pension fund could go down as well as up. For this reason, it is normally only suitable if you have a pension fund of over £100,000, after withdrawing any lump sum, or you have other assets or sources of income.

More recently, a different type of income drawdown product has emerged, which gives a guarantee to underpin the income.  These products originated in the United States, and, although very suitable for certain circumstances, they have not proved to be especially popular in the UK, and indeed one major provider withdrew from the UK market in 2009.  These are frequently known, slightly confusingly, as Variable Annuities.

If you think this type of arrangement may be suitable for you, please feel free to contact us either by using the email facility on the right, or by telephoning

0845 123 5590  or  01325 487192