Discover the benefits of Pension Drawdown

Take your tax-free cash and leave your pension invested with Pension Drawdown

Drawdown is a higher risk option than buying an annuity and only suitable if you have alternative sources of income or other pensions. It allows you to take the tax free cash and leave the remainder of your pension fund invested with the option to take an income if required of up to 120% of an annuity (standard single life, level with no guarantee basis) until a retirement age of 75.

Instead of buying an annuity with the remainder of the fund, the money remains invested, where it may benefit from investment performance in a tax-efficient environment. You may in this way defer taking an annuity until such time it is considered more appropriate. Before April 2006, an annuity had to be bought by age 75. This is no longer necessary, although the member must move into ‘Alternatively Secured Income’, a more restrictive form of Unsecured Income.

The word ‘unsecured’ is used to differentiate between Annuity purchase – where the pension income is ‘secured’, fixed for life, and carries guarantees to this effect. As ‘unsecured’ funds remain invested, there are no guarantees that any level of income can be maintained indefinitely.

To find out more vist the pension drawdown calculator. here

Income Drawdown with SIPP Options

The Prudential Flexible Retirement Plan (FRP) offers the following benefits:

  • Single product wrapper containing a personal pension, income drawdown and SIPP options
  • Account style structure allowing ease of transition between the different components of FRP
  • Ability to hold protected rights and non protected rights
  • Lifetime value charging structure with AMC discounts for fund size and longevity of investment (excludes the Self-Invested Fund and the Income Drawdown Holding Account)
  • Transparent and flexible
  • Wide range of investment options including the recent addition of our PruFund Cautious Funds, and PruSelect fund range

Find out more about how this product could benefit you call 0800 043 0725

Kevin Stelfox, Retirement Solutions, Independent Financial Advice on Income Drawdown

Income Drawdown v Annuity Purchase

Annuity v Drawdown Income Rates

The tables below show the amount of annual income that can be derived from an Annuity and an Income Drawdown or Pension Drawdown as it is sometimes called. Rates after different for a men and women. 

This income is based on the FTSE 15-year gilt yield of 3.75% for October 2009. This rate can vary on a monthly basis so these figures are for guidance only.  An Income Drawdown allows you to take an income that is 120% of the Government Actuary Department (GAD) rate which is 3.75% for the examples shown.  The annuity income is based on a single life with no guarantees and level income.

The first table shows the amounts for a man with an initial fund of £133,333.  The income is based on the fund of £100,000 after the 25% tax-free lump sum of £33,333 has been paid out.

Man Age Annuity Drawdown 120% of GAD Difference
       
50 £5,393 £5,880 £487
55 £5,738 £6,360 £622
60 £6,268 £7,080 £812
65 £6,997 £8,040 £1,043
70 £7,941 £9,360 £1,419
74 £9,041 £10,920 £1,879
       
Man Age Annuity Drawdown 120% of GAD Difference
       
50 £5,307 £5,640 £333
55 £5,541 £6,120 £579
60 £5,941 £6,600 £659
65 £6,543 £7,440 £897
70 £7,387 £8,400 £1,013
74 £8,260 £9,600 £1,340

Pension Drawdown

Pension Drawdown or Unsecured Pension

Expert Advice on Pension Drawdown

This involves you taking up to 25 per cent of your fund as tax free cash, and leaving the remainder of your pension fund invested. In the meantime, you can take income as and when you need it from the fund, subject to certain Inland Revenue limits, but you are not obliged to take income each year. If you want, you can choose to take no income at all for as long as you like until age 75 when you are obliged to either buy an annuity or transfer the fund to an Alternatively Secured Pension or ASP.

The minimum income you can take from an unsecured pension is zero and the maximum is roughly 120 per cent of what a single, level annuity would pay someone of your age. Unsecured pensions replaced “income drawdown” when the new rules for pension simplification came into force on 6 April 2006.

The advantages of taking an unsecured pension

Taking an unsecured pension has a number of advantages including:

  • income flexibility – each year the amount of income taken can be varied between the minimum and maximum limits. Income can also be taken monthly, quarterly, half yearly or annually.
  • control over your investments – if the unsecured pension is set up through a self invested personal pension or Sipp, there is a wide range of investment options available.
  • choice of death benefits – unlike annuities where the only death benefits available are from a joint life, guaranteed, or money back annuity, drawdown offers a choice of death benefits.

For more information visit annuitysupermarket.com

Open Market Option

The annuity market is very competitive and rates differ between annuity providers. You can substantially increase your pension income by purchasing your annuity from the company which pays the most income. This is called “exercising the Open Market Option.” It costs nothing to take advantage of this option and new rules introduced recently by the FSA mean that insurance companies must tell you about this option.