Income Drawdown - The Basics

Under 75s - Unsecured Pension

• Instead of buying an annuity, money is invested in an Income Withdrawal Plan (also called Income Drawdown or Pension Withdrawal). The correct name now for this type of contract for those under age 75 is  Unsecured Pension or sometimes Unsecured Income.
• An income can be taken up to a maximum level based on rates set by the Governments Actuary’s Department (GAD).
• The income would be approximately 20% more than a conventional single life annuity
• The tax-free lump sum can be taken
• If just the tax-free lump is required then the plan can be set to provide no income, and leave the funds invested to grow
• The income can be varied each year, between nothing and the maximum
• If the plan grows by more than the amount taken out and the charges, then the fund value will increase
• The more you take out as income, the more it needs to grow to maintain the fund
• The income levels are reviewed every five years, based on the then current GAD rate and fund value, and the maximum income could be higher or lower

Although income drawdown remains the most popular method of taking an Unsecured Pension, it is also possible to buy short term annuities as a means to provide an income. This is currently a very limited market, and very few providers offer this type of contract.

Over 75s - Alternatively Secured Pension

• Instead of buying an annuity, money is invested in an Income Withdrawal Plan (also called Income Drawdown or Pension Withdrawal, or more correctly an Alternatively Secured Pension or even Alternatively Secured Income).
• An income can be taken up to a maximum level based on rates set by the Governments Actuary’s Department (GAD), assuming you were always age 75.
• The maximum income would be approximately 30% less than a conventional single life annuity for a 75 year old.
• The lump sum must be taken before age 75
• If you wish no income needs to be taken from the plan
• It is possible to pass on the fund in the event of your death to other members of your family, but there is a potential inheritance tax charge if they are not financially dependant
• This is the current position with regard to Alternatively Secured Pension and is of course subject to change.

Income Withdrawal (also known as Drawdown), is not suitable for everyone. The income is not guaranteed, and can fall as well as rise, and you need to understand the potential drawbacks.

 Click here to see the advantages and disadvantages.