What is Income Drawdown?
Did you know that buying an annuity is not your only option, when you take your personal pension? Another option is income drawdown.
Income drawdown allows you to draw out up to 25% of your pension savings free of tax, before using the remainder to set up an income drawdown contract.
The freedom with income drawdown is that you may choose to take no monthly income, from time to time. This makes income drawdown particularly suitable for those continuing with some paid work after their official retirement, by ‘retiring gradually’.
Request income drawdown advice online or call 0800 678 5929
Unsecured Pensions / Income Drawdown
Income drawdown is also known as an unsecured pension, and on retirement at 65 offers you a flexible alternative to an annuity.
Where an annuity gives a guaranteed payout, income drawdown is more flexible, as you can take or ‘draw down’ larger amounts, subject to limits set by the taxman. An income drawdown investment is more risky, however, as your pension savings remain invested in the stock market.
Another major advantage of income drawdown is that your unsecured pension remains your money – in other words, you can leave it to your family when you die. With an annuity, your pension savings become the property of the insurance company. If you are unsure of the right path for you, please speak to one of our expert retirement advisers.
Request pension & retirement advice or call 0800 678 5929
In recent years, those holding an income drawdown product have generally looked anxiously on, as their investments headed for the bottom of the graph. Despite falling returns, there were those who continued to draw down a substantial income from their fund.
It is generally recommended that income drawdown investors do not draw down more than the natural yields on their investments. These may include the interest made on cash savings, dividends from equity investments, and rental income from property. Those who do are eroding their pension capital, and a good financial adviser would strongly recommend that they desist from taking an income, or reduce their income withdrawals, in the context of a severe stock market correction such as the one we have witnessed. Or to put it in plain terms: if you spend more than your money has earned, you eat into your capital.
