Income Drawdown (Pension Fund withdrawal)
This term is now redundant in its technical pre-April 2006 sense, although it is expected to continue as a marketing/descriptive term.
What you need to know post April 2006 - the flexible new rules pretty much allow you to achieve similar results, plus others possibly even better attuned to your needs.
The information below relates to pre-April 2006.
This is a facility whereby you can take some benefits from your pension without having to purchase an annuity immediately.
This has the effect of allowing the purchase of annuity to be deferred (perhaps as late as age 75, or maybe simply until annuity rates increase) while enabling an income to be taken in the meantime. (If tax-free cash can be taken from the pension then you can do so). NB. If the tax free cash is not taken at outset it is lost.
The advantage is that you might end up with a better value pension (if you buy when annuity rates are higher). The risk is that you may suffer a fall in capital value in the intervening time, or that annuity rates may fall.
Because of the risks Income DrawDown is normally only considered for those who either have large funds or for those whose other resources mean that they will not be too dependent on their pension.
The maths of this is very dependent on individual circumstances and so a proper assessment needs to be conducted by a financial adviser.
One final note worthy of consideration, especially by those with other sources of income (and who do not need to use the fund for their own requirements), is that in the event of death, the fund can be passed to beneficiaries, (unlike the case if you have bought an annuity). There will however be a tax charge made against the fund of 35%.
You should always take professional financial advice before making any decisions about your retirement income.
This facility can be utilised in conjunction with .
Last updated on May 15, 2006