Income Drawdown

If you wish to consider your alternatives and options we are pleased to be able to provide a review of what you have and provide recommendations in line with your needs and aspirations Independently, Free of Charge and Without Obligation. Your recommendations are in writing and totally unbiased.

There are some considerations to be made before committing yourself either way but if you are looking to retire soon you should, wherever possible, keep your options open and not suffer a low retirement income for ever just because the timing is wrong.

Income Drawdown, which is also referred to as Pension Drawdown or an Unsecured Pensions are proving a popular alternative to buying a lifetime annuity at a time when pension fund values are still generally way down on the mid 2007 high and annuity rates are low.

They allow you to take a Tax Free Cash Lump Sum and draw an income from your pension fund whilst it remains invested. The maximum level of income you can draw is about 100% of the non- increasing income normally provided from a more traditional annuity, based on a single person of your age and sex. On the death of the individual in income drawdown, the surviving spouse/partner will have a number of options. They could continue with the income drawdown, purchase a pension annuity or take the whole fund as cash less a 55% tax charge.

At any point in the process you can choose to convert your fund to an annuity using an Open Market Option which ensures you get the best deal possible taking into account yours, and your spouses if applicable, health and lifestyle.

The way your pension fund remains invested should be in line with your specific attitude to investment risk and be regularly re-balanced and if appropriate adjusted. You can be as cautious as you like or as adventurous as you like. We have portfolios to suit your needs.
If you choose this method of accessing your pension benefits you would probably do so in anticipation of increased annuity rates, which happens naturally as you get older, or as a result of a rise in interest rates. In addition you would be hoping that your investment fund increases in value so that you can buy a larger annuity with your larger fund.
All common sense BUT some simple housekeeping rules should be applied to how you manage the Income Drawdown Facility.

When you establish this type of arrangement you will be able to access up to 25% of your fund value as cash. Bear in mind how much you will get and consider, seriously, do I need income yet? If you can manage without it for some months or even the first year you will be able to see what growth, if any, your fund has achieved net of charges and then decide what income to take. This will help you protect your capital sum if markets take a down turn. Simple economics spend your profit not your capital.

One final point, because if you want a full assessment and advice we will provide this for you in writing, free of charge and without obligation;

One of the key advantages of Income Drawdown is that you are not delaying your income opportunities and as such will not be chasing ‘lost years’.

Simple Example.

You have £100,000 and the annuity/income drawdown rate is 6%.

You can take £6,000 per annum income but you wait a year hoping values and annuity rates increase.

Your fund goes up by 20%. Wow. It’s now £120,000.

Annuity rates have not changed; fancy that, low interest rates look set for some time so realistic.

You can now take an income of 6% of £120,000 = £7,200.

Brilliant. An increase of £1,200 per annum.

BUT. You have missed out on a year’s income of £6,000 and to catch that up at an increased income of £1,200 per annum will take you 5 years. 

If you take an income drawdown you can take the income, at outset or at the end of the year and then buy the annuity using the increased value.

If your fund only grew by 10% to £110,000 your potential income has increased by £600 per annum and it will take you 10 years to catch up on the £6,000 of income you have not taken.