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

If you're under 75 there is unsecured pension
And if you're over 75  alternatively secured pension

There are a number of different terms for these different products, such as income drawdown, income withdrawal, pension fund withdrawal, and drawdown. Strictly speaking it should now be referred to as "unsecured income" or "unsecured pension" for those under age 75, and alternatively secured pension or alternatively secured income for those aged over 75.

Unsecured Pension (income drawdown for those under age 75)

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• An income can be withdrawn from the fund.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 20% more than 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 five years, based on the current GAD rate and fund value

• An annuity can be purchased at any stage, or the plan converted to an "alternatively secured pension" at age 75.  

There are a number of advantages with an unsecured pension:-

• 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 35%

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

• Buy an annuity with proceeds

Alternatively Secured Pension (for the over 75s)

If you're already in an income drawdown contract, or pension plan and are approaching age 75, and you don't want to buy an annuity, then you could opt for an "alternatively secured pension". It works in a very similar way to an unsecured pension (income drawdown for the under 75s). But there are some key differences:

• The maximum income is restricted to 70% of the GAD rate

• The maximum income is likely to be lower than a single life annuity

• All the tax-free cash must be taken before it commences, or it is lost

• The income levels are reviewed every year

• In the event of your death the funds must first be used to provide your spouse or dependents an income, (which can mean continuing to draw an income)

• If you leave no spouse or dependent, or they die, then the funds can pass to other members of the scheme.

• If your children are members of the same scheme, they can inherit the funds as part of their pension funds, but the funds would be liable to inheritance tax

• The funds can not leave the pension scheme environment

There are course some disadvantages with both unsecured and alternatively secured pension:  

• 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

 If you want to know more about alternatively secured pension or unsecured pension, or want to request an illustration then call us free on 0800 07259897, or contact us online.