Rather than buying an annuity, an individual can elect to leave their pension fund or funds invested in an arrangement known as ‘income drawdown’.
There are three variants of a drawdown pension:
- capped drawdown
- uncapped (or flexible) drawdown
- phased drawdown.
The need for flexibility in retirement has never been greater. Watch our short video to find out What is Income Drawdown.
Find out if you are eligible
Call our specialist pension drawdown adviser team on 0800 043 6701 or use our Income Drawdown calculator on the right.
Getting Advice – How we can help
- Help you consider the level of income carefully using phased pension drawdown and/or phased flexible drawdown where relevant.
- Help you consider any tax implications
- Help you move your fund into drawdown
- Help you select the investments
Income drawdown lets you take income directly from the pension fund
Rather than buying an annuity, an individual can elect to leave their pension fund or funds invested in an arrangement known as a ‘income drawdown pension’. There are three variants of a drawdown pension: capped drawdown, uncapped (or flexible) drawdown and phased drawdown.
Capped income drawdown — restricted withdrawals
• The option is available from age 55: there is no upper age limit • The maximum amount of income that can be drawn each year is about the same as a level annuity would pay for a person of the same sex and age • Up to 25% of the fund can be taken as tax free cash in the normal way • It is not necessary to draw any income at all • The maximum income limit — which takes account of age and the size of the pension pot — is reassessed every three years for individuals aged 75 and less and once a year for those over 75 years of age
Flexible drawdown — unrestricted withdrawals
• The option is available from age 55: there is no upper age limit • The individual must be in receipt of a minimum and guaranteed income of £12,000 a year • Up to 25% of the fund can be taken as tax free cash in the normal way • What remains of the fund can then be withdrawn in its entirety or part withdrawals can be made as and when the individual likes • Withdrawals are subject to income tax at the individual’s highest rate • The individual can make no further contributions to a pension or join a final salary scheme.
For further information about flexible drawdown click here
Phased Income Drawdown
Phased drawdown can be very tax efficient and provide a flexible way of taking pension benefits.
Just to remind you there are two variants of income drawdown:
- Capped income drawdown — which has restricted withdrawals
- Flexible drawdown — which provides unrestricted withdrawals
You can use phased drawdown with both capped and flexible drawdown
Phased drawdown can be very tax efficient in terms of how you draw money from your plan and also in terms of the death benefits it provides.
By only crystallising small amounts it leaves more to be paid as ‘return of fund’ in the event of death and therefore less funds subject to the HMRC 55% drawdown pension tax charge.
An example using Phased Flexible Drawdown
If you can satisfy the £20,000 minimum income requirements (MIR) then phased flexible drawdown can be extremely efficient.
To take an income of £10,000, you could crystallise £11,764, take a tax free pension commencement lump sum of £2,941 and drawdown a net income of £7,050 (£8,823 – 20% income tax)
How we can help you decide
Taking income from an Income Drawdown plan is extremely flexible, in that you can decide the level of income you require (between nil and the maximum) and you can adjust the level of income at anytime.