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Income Drawdown

This is an alternative to an annuity. The money in your pension fund remains invested, but you can take some of the money out at regular intervals to pay for your retirement. The amounts you can withdraw are limited by the government, to try and avoud your funds running out.

Potential benefits of drawdown are flexibility, potential for increased income and better death benefits however, the main drawback is that because your pension fund remains invested, it remains at risk.

The changes to pension rules introduced by the Government in April 2011 have now created 2 different types of income drawdown plans as follows:

Capped Income Drawdown

An income may be taken from your invested pension fund each year, which will be taxed as earned income. This income may vary between limits, which are set when you first take out the plan. The maximum limit is derived from tables published by the Government Actuary's Department (GAD) and is based on your fund size, age, sex and the current yield on long term gilts (these are loans to the government). The minimum is nil and the maximum is set at 100% of GAD.

Flexible Income Drawdown

This has no maximum income limit but you must be able to prove you already have a minimum income secured through other pension means of at least £20,000 pa. Income taken under this option is also taxed as income.

In order to use Flexible Drawdown Pension an individual must:

  • Satisfy the Minimum Income Requirement.
  • Have paid no contributions (or had any contributions paid on their behalf) in the same tax year in which flexible drawdown is to be taken.

The option of income drawdown is not for everyone and requires specialist advice, which we are happy to provide. Please contact us for further details.

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