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Income Drawdown (Unsecured Pension)

What is Income Drawdown (Unsecured Pension)?

It is a facility that allows an individual to defer the purchase of their pension from an insurance company. An income is drawn from the fund, and the residual fund remains invested. The income that may be drawn may vary depending upon the fund performance. The income is not guaranteed for life.

How does it work?

You can choose to take up to 25% of your pension pot as a tax free lump sum. You can then move the remainder of your pension into funds that allow you to take an income at times suitable to yourself. Many people use it to take regular income. The income may be adjusted from time to time depending upon the performance of your invested funds.

There are two types of income drawdown:

Flexi Access drawdown - introduced in April 2015, there is no limit to how much income you choose to take from your drawdown funds

Capped drawdown - this option was only available before 6th April 2015 and has specific limits on the income that can be drawn down. If you are already in a capped drawdown arrangement, there are new rules regarding tax relief on any future pension savings if you exceed your income cap

What are the advantages?

The individual is able to choose to purchase the pension at the time when pension (annuity) rates are favourable. If investment growth is achieved on the residual funds together with the fact that annuity rates increase with age, a higher pension may ultimately be purchased than could have been secured at outset. Also, many individuals are reluctant to purchase a pension from an insurance company since the whole of the purchase price is not returned on death, whereas under income drawdown the residual fund can be returned.

Combination of options?

Some providers offer retirement income products that combine income drawdown with other features such as guarantees of income and or growth. Income drawdown products are complex and we recommend speaking to an independent financial adviser before making a decision

Who runs these types of schemes?

Income withdrawal is available to individuals who have a Stakeholder, Personal Pension Self Invested Personal Pension, or possibly who are members of an Executive Pension Plan or a Small Self Administered Pension Scheme.

What are the risks?

If investment performance on the fund remaining is poor, the level of income payable may reduce. The level drawn is reviewed annually. There is thus no guarantee that the pension ultimately purchased will be higher than the amount that could have been purchased at outset.

Other retirement options?

Income drawdown is just one of several retirement income options that are now available to you. For more information on your retirement options, call us FREE on 0800 255 0123 or click here for one of our advisers to contact you.

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