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You may have to pay some tax if you choose a drawdown pension, but this is dependent on the amount you withdraw and when. Income drawdown can be more expensive than an annuity but it could be the more suitable choice if you do not need or want to take all of your pension immediately, for example if you are planning to carry on working part-time or if you have income from other savings or investments.Īn annuity offers peace of mind, because of the guaranteed income for life, but does not have the flexibility of pension drawdown.Ī third option would be to use part of your pension fund to purchase an annuity, either at the outset or a later stage, while leaving some of your pot invested, with flexi-access drawdown Do you pay tax on pension drawdown? If possible, take independent advice to help you check your pension. So, before you decide which pension drawdown provider to go with, compare charges and flexibility. Extra flexibility can often mean extra pension costs, for example if you want to change the income you take or withdraw sums on an ad hoc basis. When it comes to choosing a pension scheme you will want to consider how much flexibility you need. However, if you have a capped drawdown plan you may be able to transfer to a flexi-access drawdown plan. With a capped plan you can also withdraw 25pc of your pot as a tax-free lump sum but the income amount you can take is limited each year. With flexi-access drawdown, you can withdraw up to 25pc of your pot as a tax-free lump sum if you are aged 55* or over, and there is no limit on the income you can take.
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those set up after 6 April 2015 are flexi-access drawdown plans.There are two main types of drawdown pensions: However, even if your provider offers flexi-access drawdown, you may want to consider taking independent pension advice first. If that is the case you can still transfer your pot to a flexible scheme. Research by Profile Pensions shows 90pc of plans do not allow customers flexible access to their cash from 55**. If you’re considering this option, the first thing you need to check is whether your provider offers flexible access. You are eligible for pension drawdown if you are aged 55* or over and belong to a defined contribution scheme or plan – one that you will have paid into and to which your employer might also have contributed – or have a personal pension such as a Sipp (self-invested personal pension). Ongoing management of your pension is important to make sure it matches your attitudes to risk and personal circumstances. But a flexible drawdown pension is not risk-free and if your investments perform badly, the value of your income and your pension fund could go down. If the underlying investments do well, both your pension fund and your retirement income can increase. This means the income you receive will depend on the performance of your funds.
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With a drawdown pension, your savings stay invested.
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It is also called income drawdown, and it is an alternative to buying an annuity, which would guarantee you a set income for life but also mean that your money is no longer invested. This will provide you with an income that can be paid regularly or as an annual lump sum. Pension drawdown is a flexible way to access your money at retirement, allowing you to withdraw some of the money from your pension pot while keeping the rest invested. It will answer important questions about new rules, charges and pension drawdown tax implications. This guide will explain what pension drawdown is, how it works and whether it can help you to maintain a pension pot that will meet your retirement needs. If you are looking for a flexible retirement option, you may be considering a drawdown pension.