Income drawdown or as it is sometimes referred to pension drawdown, is where, when you reach retirement you leave your pension fund invested rather than converting it to an annuity.

You can take 25% of your pension fund as tax free cash, and leave the remainder of your fund invested.  Taking a tax free lump sum is a once only event.  If you enter into an income drawdown arrangement, you can take your tax free lump sum at the start or wait until you come to buy your annuity.  You cannot take a tax free lump sum more than once.  Taking a lump sum is not possible after age 75.  So, if you move from income drawdown into an alternatively secured pension at 75, without having taken a lump sum, it will then be too late.

This facility can only be continued to age 75, at which time an annuity has to be bought or the money transferred into an Alternatively Secured Pension (ASP).

The income that can be taken from a drawdown arrangement can be varied each year between a minimum and a maximum.

You should seek help from your financial planner before entering into this type of plan to ensure it meets your needs.

How does it work before you’re 75?

You can choose to take income from your pension fund from age 55. Most personal or stakeholder pensions allow you to take a tax-free cash lump sum, normally up to a maximum of 25% of the fund value, so, the first step is to decide how much tax-free cash you want to take, if any. Then, the rest of your pension fund can be invested in an Income Drawdown plan and this is then used to provide you with a regular income.

Income taken in this way is known as an Unsecured Pension (USP). The Government sets a maximum limit of how much you can take as income in any 12-month period from a USP. However, there’s no set minimum, which means you could actually delay taking an income if you want to and simply take your tax-free cash lump sum. The amount of yearly income you take must be reviewed at least every five years.

What are your options after you’re 75?

From age 75, income drawdown plans are subject to different Government limits and become known as Alternatively Secured Pensions (ASPs). If you’re already receiving income from our Income Drawdown Plan, when you reach the age of 75, it will become an ASP. But you will still be able to receive a regular income while the rest of your fund remains invested. There is a minimum amount you have to take as income from an ASP.

If you haven’t already taken your tax-free cash lump sum, this option will no longer be available to you from age 75. The remaining value of your personal pension fund must be used to either buy an annuity – which will give you a guaranteed income for the rest of your life – or transferred to our Alternatively Secured Income Drawdown plan.

Any further questions regarding income drawdown?

If you require any further information on income drawdown annuities or independent financial advice, please call us on 01582 839280 or email us.