What is an Income Drawdown?

Income Drawdown allows individuals to withdraw a tax free lump sum from their pension fund. The terms of an income drawdown vary with different providers, and it’s crucial to find the best deal. This can also be referred to as a pension drawdown or an unsecured pension. The funds can be taken as cash, or re-invested into a combination of cash, shares, sipps, bonds or gilts. Drawdowns have been a popular option with individuals approaching retirement, with over 200,000 taking drawdowns since 1995. However, they should never be taken without seeking professional advice, because every circumstance is different.

Income Drawdown Rules

The key rules for an income drawdown are listed below:

- From April 2011, there is no minimum amount that must legally be taken

- However, most income drawdown providers do set a minimum fund value. Often around £100k

- The maximum amount was 25% of the fund value but is now based on the Government Actuary's Department rates

- Basically this means the maximum % differs based on your age & gender

- If you started your drawdown before April 2011, you will have to convert to the new rules or purchase an annuity.

- You cannot arrange a pension drawdown more than once

- Flexible Drawdowns are only an option for those that have finished saving

- The person must be receiving a secure pension of at least £20k per year.

- These flexible options allow withdrawals of any % as frequently as chosen

Is an Pension Drawdown right for you?

This will completely depend on your circumstances, different options. You should never take a drawdown without speaking to an Independent Financial Advisor first. An IFA will assess your personal circumstances in detail, and then clearly explain your options. They can also advise on any relevant death benefits. This will include the advantages of taking an income drawdown, and any possible disadvantages. This all comes within your free consultation, and there is no obligation to take things further. If you decide to proceed, they will also advise on the best amounts and timescales for any withdrawals. You can only drawdown on your pension once, so it’s important to choose the right option.

Finding the Best Providers and Deals

Terms vary widely across all the different providers, so it can be very hard to find the best deal. An IFA is not tied to any financial providers, so they can find the best income drawdown deals from the whole of the market. This means finding the best terms for your withdrawal, and the best deals for re-investment to maximize your returns. They can also help with all aspects of your financial planning, including any pension or retirement considerations.

Income Drawdown Death Benefits

Death Benefits are one of the most popular features of a pension drawdown. If the holder dies whilst invested in a pension plan, the remaining crystallised funds can be passed over to their spouse tax free. The only caveat is that these funds must be invested in that person's pension plan. The spouse can either buy an annuity with the inherited fund, continue with the drawdown, or pay a 55% tax charge to take the money as a lump sum withdrawal.

Please note this website does not give financial advice in any way. We simply arrange free consultations with a suitable Independent Financial Advisor.