Income Drawdown

Income drawdown (also known as unsecured pension) is a higher risk but more flexible alternative to an annuity. Instead of handing your pension fund to an insurance company in return for a guaranteed income, you keep control, choose where it is invested and take a variable income directly from these funds. 

Firstly, you decide how much of your SIPP fund you want to move into drawdown. You can then normally take up to 25% of the amount moved into drawdown as a tax-free lump sum and draw a regular income from the rest. There is no minimum withdrawal amount - so you could choose zero income if you wish. Any income is subject to tax at source, on a Pay As You Earn (PAYE) basis.  

The major advantages of Income Drawdown are a flexible income, greater control and your funds remain invested for potential future growth.

    

The major advantage of income drawdown as an alternative to the traditional annuity, is that you get to draw a flexible income and you have greater control over the level of income. In addition, your pension fund remains invested and you can select the most potentially profitable investments and therefore maximise your return. You should review and monitor your investments regularly. 

The maximum level of income you can draw each year will be 120% of a ‘basis amount' calculated in a manner determined by HM Revenue & Customs. This is known as a GAD calculation, as the tables determining the maximum income are produced by the Government Actuary's Department (GAD). 

In practice the basis amount was intended to be roughly equivalent to the maximum single life level annuity you could buy with the same fund on the open market, although this will vary over time. If you smoke, or suffer from ill health, an annuity income could be higher than the GAD limit allowed under income drawdown, as the GAD calculation does not take health or lifestyle into account.

As long as you stay within the maximum limit you can control how much income you take, and when you take it. Every five years we are required to review your plan and recalculate the maximum annual amount you can withdraw from your income drawdown plan. This is known as a five year review. 

After each review we will tell you the new annual GAD limit, which could be lower or higher than the limit from the previous five years. A review will also be triggered if you switch any more money into your drawdown account from your main pension fund, or if you take money out to buy an annuity. You can also request that a review takes place on an anniversary of going into drawdown. This will start a new five year period.  

By age 75 you must have bought an annuity. If you have not done so your fund will be moved into Alternatively Secured Pension (ASP). 

ASP is a continuation of income drawdown from your 75th birthday, with more limited income and more restrictive death benefits.

If you or members of your family are considering Income Drawdown, please feel free to contact us for personal Income Drawdown advice from an Independent Financial Adviser. We are able to provide home appointments across the whole of West Sussex - Brighton, Hove, Haywards Heath & Crawley, East Sussex, Surrey - Croydon Sutton, Reigate, Redhill,  South London - Wimbledon, Fulham, Chelsea and Hammersmith and Central London.

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