What is income drawdown?

12th October 2011

When it comes to retirement and choosing a pension there are several options that are available to the consumer.  Most people benefit from a State pension which pays a generic amount to each individual who has completed a certain amount of years of paying into their National Insurance fund. In addition, another option that many people choose to call on is a private pension package which they may have paid into over a period of working years and which allows them more flexibility to choose from in respect of their retirement options

Income drawdown is one option available to  people with personal pension funds, which enables them greater flexibility in how they draw their income during retirement. Income drawdown is an alternative to the purchase pf an annuity.

How does income drawdown work?

Income drawdown starts at retirement age and allows you to take an initial percentage of your pension as a tax free one off payment. This amount is usually 25% of the value of your pension fund .  . Income drawdown is often seen as an alternative to buying a lifetime annuity, which many people opt to do upon retirement.

Who is eligible?

Anyone is eligible to take out income drawdown but it Is traditionally the province of people with larger pension funds. A minimum fund of £100,000 is usually considered to be reasonable for income drawdown.

What are some benefits of income drawdown?

Income drawdown allows you to have a better control over your pension fund   it also allows greater flexibility with regard to death benefits.

What are some risks associated with income drawdown?

Income drawdown usually relies on some form of investment in the stockmarket and in recent years, this has proven to be quite unsuccessful for many investors. With the current market turbulence, income drawdown is not always seen as a secure approach to a pension – compared to say a lifetime annuity – and therefore many investors are cautious about taking this approach. Income drawdown is not suitability for clients who are risk averse or who have a cautious approach to investments.

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