Income Drawdown plans are complex. It's a good idea to get professional advice because what you decide now will affect your pension income for the rest of your life.
Income Drawdown is a more flexible alternative to the traditional annuity route, offering greater choice and control for many people.
You can put off buying an annuity, and instead withdraw a regular income or take adhoc withdrawals from the pension fund while the remainder of the fund stays invested. While the fund remains invested, you could benefit from growth in the market - and from ongoing advice.
Anyone from the age of 55 (expected to rise to 57 from 2028 and then remain 10 years below state pension age) can set up a Drawdown contract. It could be suitable if you:
- want to vary your income over time, to reflect changes in your circumstances
- want your pension fund to continue benefitting from potential investment growth, and you’re prepared to accept the risk that the value of the fund may fall
- have other sources of income
- want to maximise the benefits your family receives upon your death, and also give more choice about how they receive these benefits
- are in ill health, and would like to pass on remaining assets to your estate
- want to control the time at which you buy an annuity
- want to maintain an active interest in managing your pension fund
Typically, Income Drawdown suits people who are not averse to investment risk, and who have larger pension funds.
However, there are no guarantees that income will be greater than if the fund was used to purchase an annuity at retirement. There is also no guarantee that the initial income level selected will be maintained. The costs of Income Drawdown are normally higher than for an annuity.
A pension is a long term investment. The fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation.
Points for consideration of Pension Transfers
There is much to consider regarding the real value of Final Salary or Defined Benefit (DB) pension schemes.
In recent years, pension transfer values for these types of plan have largely risen and some individuals have decided, with or without advice, to transfer their protected pension benefits to personal pension / SIPP arrangements from deferred or current employer schemes.
Policy Statement PS18/20 (October 2018 / Improving the quality of pension transfer advice) from the UK regulator, the Financial Conduct Authority (FCA), notes the following:
'While most consumers will be best advised to keep their DB pensions and other safeguarded benefits, we recognise that the pensions environment has changed. This is particularly the case since the pension freedoms gave consumers with Defined Contribution (DC) pensions more options to access their pension savings.
As a result, there has been an increased demand for pension transfer advice, as advice is mandatory under government legislation for potential transfers valued at more than £30,000.'
We hope that the information above is helpful.
Some individuals are attracted by what are perceived to be greater flexibilities in moving away from Final Salary type pension arrangements. However, this is usually at the expense of losing valuable guarantees, and each individual needs to consider many aspects of their personal circumstances before coming to a decision on the most appropriate course of action.
It is vital that individuals understand the underlying pension guarantees, in their various forms, before starting any process, advised or otherwise, of making changes to their employer sponsored pension plans.
There is a cost to pension advice / transfer advice, irrespective of the decisions made as to how future pension benefits will be treated, and this notice is designed to help individuals understand some of the implications before they seek advice and before they incur advice costs.
We are qualified to provide advice in this area and will charge to provide advice if we engage. To speak to an expert adviser please call us on 01494 451441 or email firstname.lastname@example.org