All about Drawdown
Pension Drawdown (Unsecured Pension)
Drawdown allows you to make income withdrawals direct from your pension fund instead of buying an annuity.
Drawdown has many advantages compared to investing in a guaranteed annuity including:
- Income Flexibility - Each year the amount of income taken can be varied between the minimum and maximum limits. Income can also be taken monthly, quarterly, half yearly or annually.
- Control over investments - If drawdown is set up through a Self Invested Personal Pension there is a wide range of investment options available.
- Choice of death benefits - Unlike standard annuities where the only death benefits are available from a joint life annuity, drawdown offers a choice of death benefits.
The basic rules for drawdown are simple, but it is a complex option because of the risks involved.
- The value of investments may fall in value
- Annuity rates might fall in the future and there is no benefit from mortality cross subsidy
- Any lump sum death benefits will be taxed at 55%
When you buy an annuity you give up control of your pension fund in return for a secure income. With drawdown you maintain control of the pension fund but your income will not be secure and so it is a much more risky option than buying an annuity.
Types of Drawdown
There are two types of drawdown plans
- Investors who can meet the Minimum Income Requirements (MIR) of £ 20,000 per annum of secured income will be allowed to take unlimited amounts of income from their pension funds but this will be taxed at their marginal rate
- Available to everybody and allows investors to draw an income from their pension fund for as long as they like with no age restrictions. The maximum income will be 100% of the annuity rates without any age limit.
Annuities at a tipping point - Billy Burrows looks at the case for investment-linked annuities
Low annuity rates must prompt pensions rethink - BBC Website
An annuity is a serious business - Billy Burrows writes for Bestinvest
MGM Advantage sold to TDR Capital - Posted by Billy Burrows
How to make the most of your annuity - ABI Code - By Teresa Hunter in the Telegraph
It's about more than just price shopping - Billy Burrows - Financial Adviser
Annuity Update - February 2013 - Billy Burrows
Pensions: Annuity sales to be investigated by FSA - BBC website
FSA to investigate pensions annuity market amid fears - Julian Knight - The Independent
Annuity rates 'to rise by 25pc' - Richard Evans - Telegraph