If you want to take the benefits from your pension but don't want to buy an annuity, then there is an alternative, and you don't ever have to buy an annuity.
 

There are a number of different terms for these different products, such as drawdown, income drawdown, income withdrawal, and pension fund withdrawal. Strictly speaking it should now be referred to as "drawdown pension".

There are strictly speaking two types of drawdown now, capped drawdown and flexible drawdown.  

Capped Drawdown
How it works

• Instead of buying an annuity, money is invested in an income drawdown plan

• The tax-free cash can be taken if required, or left in the plan to be taken at a later date

• An income can be withdrawn from the fund. The maximum is approximately about the same as a single life annuity

• The maximum income is determined by rates set by the Governments Actuary’s Department (GAD)

• The amount of income can be varied each year, from no income up to the maximum

• If the plan grows by more than the amount taken out and the charges, 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 three  for those under 75 and yearly for those over 75. The new income is based on the current GAD rate and fund value

• An annuity can be purchased at any stage

There are a number of advantages with an drawdown:-

• The tax-free lump sum can be taken

• The income can be varied each year

• Avoids buying an annuity

• Don’t have to decide on whether to include spouse’s benefits like with an annuity

• The fund remains invested in a favourable tax environment

• As the fund is still invested it could grow further

One of the main attractions are the death benefits. In the event of your death during Personal Pension Drawdown, the options would be:

• The plan value paid out as a lump sum less tax at a rate of 55%

• In the event of your death your spouse can choose to continue drawing down an income  

• Buy an annuity with proceeds

There are course some disadvantages with capped drawdown

• Annuity rates may have fallen if you decide you want to buy an annuity later

• 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

Flexible drawdown

Flexible drawdown is an uncapped version of drawdown. You can only qualify for flexible drawdown if you have other secure pension income of £20,000 per year or more.

Once you meet this requirement you can take any amount from your pension, although it would be subject to income tax. For this reason you might want to limit withdrawals to keep you within basic rate tax.

This type of contract for some people will be "in and out", and for others just withdrawn over a period of time.

If you want to know more then visit our flexible drawdown website:
                                                                                                www.flexibledrawdown.net

If you want to know more about capped or flexible drawdown, or want to request an illustration then call us free on 0800 011 2713, or contact us online.