Pension Drawdown Advice
Income drawdown is a way of taking money out of your pension to provide you with a regular retirement income in retirement. You have to be aged 55 or over and have a defined contribution pension to access your money in this way.
Drawdown allows you much more flexibility with your pension than buying an annuity, which would guarantee you an income for life, but remove your ability to access the money on your terms.
With income drawdown, you keep your pension savings invested when you reach retirement and take money out of, or ‘draw down’ from, your pension pot. Your pension assets remain invested, so the income you receive will vary depending on the fund’s performance.
How income drawdown works
You can normally choose to take up to 25% of your pension pot as a tax-free lump sum.
You then move the rest into one or more funds that allow you to take an income at times to suit you. Professional advice from a qualified independent financial adviser is required if you wish to transfer your occupational pension into a drawdown scheme in your own name.
Some people use it to take a regular income. The income you receive might be adjusted periodically depending on the performance of your investments.
There are two main types of income drawdown product:
Capped drawdown and flexi-access drawdown
Capped drawdown
Only available before 6 April 2015, capped drawdown limited how much you could draw from your pension pot, in line with rules set down by the government. The maximum income you could take is 150% of the amount you would have received each year if you’d bought an annuity. If you are already in capped drawdown there are new rules about tax relief on future pension savings if you exceed your income cap, so talk to us.
Flexi-access drawdown
Introduced from April 2015, where there is no limit on how much income you can choose to take from your drawdown funds. You could:
withdraw all of it in one go
take regular monthly or annual payments, or
take a series of lump-sum payments as and when you want them
Pension death benefits
The amount of tax paid on your remaining pension when you die has been cut. It used to be a whopping 55%.
If you die under the age of 75
All pension funds can be inherited tax-free. This could be taken as a regular income from your drawdown plan, or as a whole lump sum.
If you die over the age of 75
The inheritors of your pension will have to pay 45% tax if they take your remaining pension fund as a lump sum. However, if they take it as regular income from your drawdown plan, they’ll pay income tax rates.
Another important change is that death benefits can now be left to anyone you choose, not simply dependants (such as your spouse). This makes it extremely important to complete your provider’s ‘expression of wish’ form, declaring who should inherit your pension pot.