Buying income drawdown
Following the introduction of pension freedoms in April 2015, many people are considering all of the options available to them for using their pension savings to provide an income in retirement. Income drawdown is one way of using your pension savings, and here’s how you might go about it.
How do I invest in an income drawdown arrangment?
If you've reached 55 – or even younger in some cases – you can consider taking income drawdown. There are many providers that offer income drawdown plans so there are plenty to choose from.
It's important that you get good advice on how to make the most of your pension savings so we would recommend you seek professional advice. If you don't have a professional financial adviser, you can search for one at thepfs.org or unbiased.co.uk
What are my drawdown options?
There are two approaches to drawdown income:
- New drawdown is known as 'flexi-access drawdown' (introduced in April 2015)
There are no income withdrawal limits, so you can access as much income and/or lump sums as you want. It's important to bear in mind the tax implications of this option though, as any lump sums that you take after the first 25% will be taxed as income.
- Old drawdown, known as 'capped drawdown'
For drawdown plans taken out before 6th April 2015, the income is 'capped' by limits set by the government. People chose this as a way to access their pension for income, while remaining invested, and retaining flexibility and choice.
How much does income drawdown cost?
The cost of income drawdown depends on your pension provider. Many providers will charge an annual administration charge, as well as an ongoing charge for the underlying investments. You may also want your financial adviser to review your investments from time to time to ensure they continue to meet your retirement objectives. They may charge you a fee for doing this.
What else should I be aware of?
There may be additional fees for moving your pension to a new provider. Plus any benefits you currently enjoy will end once you switch. If you’re unsure, it’s always best to speak to a financial adviser for advice and added peace of mind.
When you’re considering how to finance retirement, it’s important to factor in your health and lifestyle. This could have a significant impact on the length of time you’ll need your pensions’ savings to stretch for. In the video below, professional adviser Pete Matthew gives his view on longevity’s impact upon retirement financial planning.
Is income drawdown the right choice for me?
In short, it all depends on your circumstances, and we recommend discussing this in full with a financial adviser to ensure you make the right decision. However, our Drawdown Risk Calculator will help you to compare the income that you would receive from an annuity, with the same level of income taken with income drawdown. Although it's no subsitute for one-on-one financial advice, it could provide you with the insight you need to start discussing with family, friends, and an adviser. Check it out here.
Alternatively, HUB Financial Solutions - part of the Just Group - offers an annuity comparison service that could help you make sense of your options.