Income drawdown

Income drawdown, also known as pension drawdown, offers an alternative to purchasing an annuity for converting your pension fund into regular income. Instead of obtaining a fixed income, drawdown allows you to withdraw funds directly from your pension contract.

Income drawdown explained

With a drawdown, you can withdraw funds from your pension while leaving the remaining amount invested, allowing it to grow free from income tax or capital gains tax.

You you must be over 55 and can choose to start drawdown upon retirement or semi-retirement to supplement your income.

Typically, a minimum investment of £50,000 is required to initiate drawdown. Depending on your situation, it may be possible to utilise both an annuity and a drawdown strategy.

Drawdown, annuity or both?

There is no longer a mandatory requirement to purchase an annuity at any age. This means you have the flexibility to postpone buying an annuity until market conditions improve or until you reach an older age when annuity rates may be higher.

It is even possible to continue with drawdown for your entire lifetime. You now have the option to leave money in a registered pension scheme as unused funds until you need them. Additionally, in certain cases, you can delay taking your pension until after the age of 75. After reaching 75, there are various options for withdrawing money, including lump sum choices.

When considering income drawdown, an annuity, or other investment options (or a combination of them), important factors to take into account are the current market conditions, your personal health, and the size of your pension pot.

Flexi-access drawdown

Flexi-access drawdown became available as an option from 6 April 2015.

From the age of 55 (with some exceptions), you have the choice to enter flexi-access drawdown instead of buying an annuity or taking an uncrystallised funds lump sum.

The specific rules vary across schemes, and your adviser will discuss the conditions associated with your scheme

Typically, you can withdraw up to 25% of your pension, and in certain cases, you may be allowed to withdraw more with lump sum protection, while the remaining amount goes into flexi-access drawdown.

You have the freedom to select funds that align with your income goals and risk tolerance, and set the desired income. We assess your attitude to risk accordingly.

Regular income drawn from your pension is subject to taxation at your marginal rate. Receiving the first flexi-access drawdown income payment triggers the money-purchase annual allowance (MPAA).

However, if you only take a tax-free lump sum without any income, the MPAA is not triggered.

At any time, you can use all or part of your income drawdown funds to purchase an annuity or another retirement income product that offers additional guarantees for growth and/or income.

Seek advice

Income drawdowns are a complex and constantly evolving topic. If you’re considering this option, it’s
crucial to seek guidance from our independent financial advisers.

We offer free consultations

We offer free consultations to help you navigate the choices available and ensure your best interests are prioritised, without any sales pressure.

Take the first step towards your financial goals. Arrange an appointment with one of our advisors today.

Contact us now to discover how we can assist you in achieving your financial objectives. Call us 0141 272 0000 or simply fill out our online enquiry form to get started.