An income drawdown is an alternative investment contract to a traditional annuity. You might prefer it to an annuity because it gives you more flexibility and control over your options.
Benefits of an income drawdown
An income drawdown allows you to keep some of your pension fund invested - giving you potential profits from market growth and access to your scheme provider's advice - while taking a regular income from the rest.
You're eligible for income drawdown once you reach 55. Like any investment it doesn't come without risk but it could be a good option if you:
- Have a larger pension, perhaps £100,000 or more, which you want to continue to invest and don't mind taking the risk that comes with falling markets
- Want the flexibility of being able to vary your income as your situation changes
- Want to have control over when you buy an annuity
- Would like to continue to actively manage your pension
- Have another income
- Want to get the most out of the death benefits your family would get and choose how they receive them
- Are unwell and want your remaining assets, after tax, to go to your estate.
Income drawdown is a complicated subject which will impact on your pension for the rest of your life so you should get proper advice before going into one. If you accept the risks of income drawdown and have a larger pension it may well be a good option for you.
But the costs of an income drawdown are greater than those for an annuity and your income may not be bigger. You may also not be able to maintain the initial income you get.
Please keep in mind that a pension is a long-term investment and the value can go down as well as up. Your final income will be determined by the size of the fund, interest rates and tax legislation.
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This article (Income Drawdown) is intended to provide a general appreciation of the topic and it is not advice.
For more information please contact Nurture Financial Planning Ltd on 01603 673502 or email firstname.lastname@example.org and we will be happy to assist you.
Article expiry: 05 Apr 2018