Drawdown allows you to take income directly from your pension fund without the need to purchase a lifetime annuity. In turn, this allows your pension fund to remain invested in the assets of your choice whilst taking an income.
Income drawdown is a way of using your pension pot to provide you with a regular retirement income by reinvesting it in funds specifically designed and managed for this purpose. The income you receive will vary depending on the fund’s performance – it isn’t guaranteed for life.
You can normally choose to take up to 25% (a quarter) 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.
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 products:
• 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
• Capped drawdown – only available before 6 April 2015 and has limits on the income you can take out; if you are already in capped drawdown, there are new rules about tax relief on future pension savings if you exceed your income cap
There is no upper age limit on how long you may stay in drawdown, but death benefits will change when you reach age 75 if you have not withdrawn all of your benefits by this point.
Although drawdown allows people more flexibility with their pensions, income drawdown products are complex. You should always seek professional financial advice before committing to one.
