DRAWDOWN PENSION
Drawdown pension previously known as income drawdown is an important retirement option worth considering particularly for iindividuals who have pension funds of at least £100,000 in value.
Drawdown pension allows a tax free lump sum and an income to be taken directly from the pension fund itself. Recent rule changes means that it is no longer mandatory to purchase an annuity with the pension fund. However, the contracts flexibility means that
iif an annuity is required, this can be deferred until a time when it may be more suitable.
These plans also allow up to 25% of the retirement fund to be taken at any age from age 55 (this being the earliest age) as a tax free llump sum and no income needs to be taken unless required.
Drawdown Pensions will be split into two types, capped drawdown and flexible drawdown.
Capped drawdown allows income to be taken, determined by reference to annuity tables produced by the Government. The maximum iincome allowable is 100% of the highest level of income determined by the annuity tables, the minimum income that can be taken is nil. The level of income taken will be reviewed every 3 years until age 75 when it will be reviewed annually.
Flexible drawdown allows an individual to drawdown more than the capped limits from the drawdown pension providing they produce evidence that they have a sufficient minimum income to prevent them from exhausting their savings and becoming reliant on the state. The minimum income requirement has been set at a non age related figure of £20,000 per annum; this limit will be reviewed every 5 years.
Drawdown pensions are subject to tax on the income taken and in the event of death the remaining fund will be taxed at 55% if taken as a lump sum.
These plans allow flexibility in that income can be drawn to match for example a reduction in working hours from full-time employment.
Drawdown pensions are relatively complex and can only be accessed from age 55, but for some individuals they can offer a flexible approach to retirement. Careful consideration must be given to an individual’s personal circumstances and therefore you should seek iindependent financial advice from a suitably qualified adviser.
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