30 January 2018
Services:
Wealth planning & Private client,
Personal Tax Planning
Further to our blog on the main pension options available at retirement, we now look more closely at the second of these choices income drawdown, the pros and cons of this option and how it may impact on you.
What is income drawdown?
Income drawdown (or flexi-access drawdown) allows you keep your self invested personal pension (SIPP) or other pension fund invested while you draw an income from it. You can take as much income as you like, and at the same time choose where your remaining funds are invested.
This gives you the potential to receive a higher income than from an annuity over the long term, but the value of your pension can rise or fall in line with the markets - so you should be aware that you could run out of money if your investments perform particularly badly. Of course if your investments perform well the value of your pension fund will increase.
Many people choose to combine income drawdown with the security of an annuity, or other type of fixed income.
It should be noted that pension providers have no legal obligation to offer income drawdown and many have chosen not to do so. If yours doesn’t, you could benefit from transferring to a SIPP.
Pros and cons
One of the main advantages of income drawdown is the control it gives you. You can adjust your level of income to take account of any changes to your lifestyle or financial circumstances.
On the other hand, you have to be careful as too many withdrawals early on could also mean a shortfall in later life.
Treatment on death
Unlike annuities, which do not usually pay any benefits upon death, with income drawdown your money can be passed on to your beneficiaries when you die.
If you die before the age of 75, your pension can be passed on as a tax-free lump sum or tax-free income. If you die after your 75th birthday, the money will be taxed at the beneficiary’s marginal rate like regular income.
Contact Us
We recommend our clients to Tilney, one of the UK’s leading private client investment and wealth management company who provide top quality, solid and practical pensions advice.
To discuss tax on pensions, auto enrolment, defined contribution, defined benefits, transfer values or any other advice please contact Charles Coade direct on 0113 224 5544 or email charles.coade@tilney.co.uk or via our Leeds office on 0113 398 1100 or email leeds@hwca.com
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