Income Drawdown - The Pros and Cons
The advantages of
income withdrawal are:
- The tax-free lump sum
can be taken
- The income can be
varied between an upper limit and no income (the upper limit is set by
the government
- Avoid buying an annuity
- Don’t have to decide on
whether to include spouse’s benefits on an annuity
- The fund remains
invested in a favourable tax environment
- As the fund is still
invested it could grow further
It is possible to use an
income drawdown contract to "unlock your pension" from age 50. The
advantage for many people is that it enables the tax-free lump sum to be
taken early, without the need to take a taxable income. However, by
taking the tax-free cash early it will mean that there will not be a
tax-free lump sum available when you eventually retire, and it will
probably be lower amount of tax-free cash rather than waiting until a
later date.
One of the main
attractions are the death benefits. In the event of your death during
Personal Pension Drawdown before age 75, the options would be for :
- The plan value paid out
as a lump sum less tax at a rate of 35%
- Continue drawing down
income until either you or your spouse would have been 75
- Buy an annuity with
proceeds
The disadvantages are:
- Annuity rates may fall
- The fund value may fall
- The income is not
guaranteed
- Ongoing monitoring of
the plan
- Charges higher than
annuity purchase
- Loss
of the cross subsidy gained through annuity purchase
Income Drawdown is
not right for everyone, and is generally only suitable for funds in
excess of £100,000. Some insurers will accept funds as small as £50,000.
Want to know more?
Then follow the links below:
I do not want all my
tax-free cash now
I have an occupational
pension
Contact us to get more
information
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