Income Drawdown
Income Drawdown can be an effective method of managing your pension fund for flexible income up to age 75. It provides the ability to access capital directly from the fund as an alternative to buying an annuity.
HM Revenue & Customs (HMRC) introduced new income drawdown rules from 6 April 2006.
Up to 25% of the fund can be withdrawn as a tax free lump sum.
- Flexible income option between 0 - 120% of the GAD amount
- Death Benefit of the fund value to a minimum of 65% of the fund
- Phased income taken using the facility of tax free cash and income from the fund to provide greater tax efficiency
- Potential for the Pension Fund to increase or decrease in value subject to the underlying performance of the funds
- Opportunity to create an investment portfolio that reflects an individual person's attitude to investment risk
Income Drawdown is an excellent facility for clients with Pension Funds in excess of £100.000 to produce a tax efficient income and access their tax free cash without the necessity of purchasing an annuity.
With the flexibility does come a greater degree of risk that future fund performance does not match the loss of income benefits that have been deferred. It is therefore essential that clients consider this option understanding the investment risk and the need to regularly review the asset allocation of the portfolio to continue matching their ongoing needs.
The rules relating to income drawdown are to be changed in April 2011 and this will see the need to purchase an annuity at 75 cease. The new changes provide investors with greater flexibility but with a number of additional restrictions.
If this is a subject of interest, there is an even greater need to review the options and the future changes before considering income drawdown.
As qualified advisors we are able to provide clients with regular reviews and planning to monitor and update.
