Pension income drawdown allows unparalleled pension flexibility at retirement.
Traditionally when it came time to draw benefits a retiree took tax free cash with 25% of the fund and purchased an annuity with the remaining 75%. For many people the security of the promised regular income from an annuity is highly desirable and outweighs other considerations. However the budget n 204 changed all that. W.e.f. April 2015 100% of a pension fund may be taken as cash with 75% taxed at marginal rate. Play it right and you can put money in with 40% tax relief (or more) and get it out again with 25% totally tax free with the balance only taxed at 20%.
Traditional Pension Income Drawdown provides a means of effectively living off the interest produced by pension investments. There are a variety of tax benefits also. However because pension income becomes dependent on investment return this is really a path for more adventurous/ experienced investors, but the budget means those with smaller fund can take drawdown invest conservatively and reap the rewards although careful planning is still required to maintain sufficient income throughout retirement.
Until April 2015 Drawdown will continue to come in two variants: capped where the maximum income that can be taken is limited to 120% of the government actuary department’s annuity rate and flexible where you can take as much income as you like – but it is taxable at the point of extraction.
You must have a fixed income from other pension sources of at least £12,000 per annum to take flexible income drawdown.
There is no longer any need to purchase an annuity at 75.
Meanwhile please feel free to Contact Us for further information.
Facts & Figures are chartered financial planners offering independent financial advice from the whole market. We are pension income drawdown experts, based in Ashford and Canterbury in Kent.