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   Retirement Options - Income Drawdown


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     An Option - but be careful not to run out of money...    

Income Drawdown is the technical term used to describe various arrangements whereby you withdraw funds from your pension plan if and when you need them. This approach has the merit of offering a high degree of flexibility and also gives you the opportunity to keep a proportion of your money invested. That way you have the possibility of getting good returns in the right market conditions. 

 

 

The downside of Income Drawdown is of course that your investments may not do as you hoped and expected and/or you may need more money than you thought.

 

The nagging worry that 'the money could run out' if you live too long is a though which is not pleasant to embrace.

 

Anyway, the advantage of a drawdown arrangement is that it is flexible and reversible (as long as large losses are not incurred!).

 

So, should you decide to employ all or part of your retirement sum to a (perhaps temporary) drawdown arrangement some key issues are highlighted below:

 

First, you will need to decide how much, or little, of your pension you want to move into income drawdown.

 

You can choose to convert your entire pension to drawdown all at once, or you can convert smaller segments as and when you need them (this is known as partial drawdown).

 

You can usually take up to 25% of each amount you move into income drawdown as a tax-free lump sum (PCLS) and leave the remainder invested from which to draw a taxable retirement income.

 

You can in this way continue to manage and control your own pension fund and make all the investment decisions you want (in consultation with your adviser if you so wish).

 

So, providing that the fund is not depleted by excessive income withdrawals, or poor investment performance, it may be possible to increase your income later in life. However, if you get it wrong, your income will be reduced. And, if you get it very wrong, you could run out of money!

 

Income drawdown allows you to choose the income level you wish to withdraw from your pension ranging from no income at all up to a capped maximum income. You choose where your fund is invested and should review and monitor the situation regularly.

 

Anyone aged 55 or above is eligible for income drawdown, but it is can be a risky option (depending on how your funds are invested) so is not suitable for everyone.

 

Withdrawal levels

 

There is no minimum withdrawal amount for income drawdown, so you could choose to withdraw zero income if you wish.

 

The maximum income you can draw is roughly equivalent to the income available from a level single life annuity bought using the same fund.

 

It is calculated at the start of your income drawdown plan using the so-called GAD (Government Actuary Department) tables which use your age and the 15-year gilt yields to calculate the income available from your fund.

 

The income limits calculated when you start drawdown are fixed until the next review, although you should monitor any income you take more frequently. As long as you stay within the maximum limit you can control how much income you take and when you take it.

 

You should keep in mind that any income is subject to tax at source, on a PAYE (Pay As You Earn) basis so the employment of TAX-efficient 'wrappers' are highly recommended.

 

Reviews

 

Up to age 75 your income drawdown plan will be reviewed every three years and the maximum annual amount you can withdraw will be recalculated.

 

Your new annual income limit could be lower or higher than the limit from the previous three years depending on your fund value and the prevailing GAD rates.

 

A review will also be triggered if you add more money into your existing income drawdown account from your main pension fund or if you take money out to buy an annuity.

 

In some cases funds may also have to be moved out as a result of a sharing order on divorce and this will also trigger a review.

 

As most drawdown plans carry some degree of investment risk (and sometimes also other types of risk) it is highly recommended that you consult an independent financial adviser before you embark on this route.

 

Topical Issues

 PENSION CHANGES 2012

 

New rules allow increased flexibility for pension drawdown arrangements. But there are important aspects which need consideration.

 

   Read More...►

 
 

I don't want to retire right

now - maybe next year, or

the year after...

But, can I afford to cut down

on my work hours already?

     find out more 
 

Is it a good idea to buy an

Annuity now or is it better

to wait?

Should it be a single or a

joint annuity?

     find out more 

 
retired couple

What is the right way to

arrange your Investments?

How much risk can you

afford to take?

How much income can you get?

     find out more 
 

 

LET YOUR MONEY WORK FOR YOU!

 

 

 

 

 

 

 

 

 

VISIT THE DEDICATED NFA INVESTMENT SITE

NOTE: The value of investments can go down as well as up and you may not get back as much as you put in.

 

IMPORTANT NOTE:

The changes to Drawdown rules announced in the 2014 Budget are likely to affect YOU!

Call NFA on: 01603 452686 for a FREE discussion of your options.

►►
 

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Although you may be entitled to a full or partial State Pension it is important that you also get to know what other benefits and support you may be entitled to in your later years.  Read More...►

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Not very many people are aware of what Powers of Attorney really are or How they Work? You need to know that they In many cases can be of critical importance in a difficult situation.  Read More...►

 

 
 

 PENSION CHANGES 2014

 
 

Is Income Drawdown a ticking time bomb?

Law changes and low Gilt yields can have a large impact on drawdown Portfolios.

   

   Read More...►

 

 

 

 

 

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You are always Welcome

to contact NFA for a free discussion

of your Income Drawdown

Situation

 

Phone: 01603 452686

 

 

e-mail: info@norwichpensions.co.uk

 
     

 

 

 

 

 

Norwich Financial Advice Limited  is authorised and regulated by the Financial Conduct Authority

and is entered on the FCA Register under FCA reference: 706645

Norwich Financial Advice Ltd. is registered in England and Wales; Company No. 8533929.  

Registered office: 74 Muriel Road, Norwich NR2 3NZ, Norfolk, England.