Tuesday, 10 June 2014

What is income drawdown?


Decide how much of your pension you want to move into income draw-down. You can choose to convert your entire pension to draw-down all at once, or you can convert smaller segments as and when you need them (partial draw-down).
You can usually take up to 25% of each amount you move into income drawdown as a tax-free lump sum, before leaving the remainder invested from which to draw a taxable income.
You continue to manage and control your pension fund and make all the investment decisions. Providing 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.
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 age 55 or above is eligible for income drawdown, but it is a high risk option so is not suitable for everyone.

What you need to be aware of

  • Risk - High
    When you keep your pension fund invested, your income will be subject to both positive and negative market performance. Your income could increase or decrease - Leaving you with nothing!
  • Ease of Use - High
    You are expected to manage your own investments.
  • Depletion - High
    Your money can be depleted by withdrawals, which in turn will reduce the capacity for income in the future. In addition, if you live longer than average you will not benefit from the security of a guaranteed income for life that an annuity offers.

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