Pension Entitlement and Drawdown

Pension Entitlement and Drawdown

Pension Entitlement and Drawdown

What's Drawdown?

What’s Drawdown?

To understand pension entitlement you need to understand that a drawdown or unsecured plan is a special characteristic of  schemes like SIPPs (Self-Invested Pension Plans) which allows plan holders to use a part or their entire fund as capital for a wide range of investment portfolios and business opportunities.

The fund still gains interest and together with the profits made from the investments, can be both exempted from tax. There are two types of drawdown; capped drawdown and flexible drawdown. Find Out More About UK Pensions.

Issues Around Drawdown

Issues Around Drawdown

Pension Drawdown

Previously, there was no maximum amount of income that could be drawn from your retirement fund. Right now, the Government Actuary’s Department is reviewing the maximum rates in which plan holders can use up as capital for different investment portfolios and business opportunities. This is reviewed every three (3) years until the plan holder is 75.

Afterwards, it will be reviewed on an annual basis. Once the plan holders reach 75 years of age, they have the option to take tax-free lump sum payments regardless of whether they have done an income drawdown or not.


Two Types of Drawdown

Capped Drawdown


Type 1: Capped Drawdown

A capped pension drawdown1  puts a limit to the amount of income that can be drawn from the fund. Right now, that amount is about £6,800 a year for every £100,000 fund you have at age 65.
Type 2: Flexible Drawdown

A flexible drawdown allows the plan holders to withdraw whatever amount they want from their pension fund at any period of time. In order for this to be possible, you have to provide proof that you are already receiving a secure retirement fund of not less than £20,000 annually and that you have no more contributions to fulfil.

Advantages Of A Drawdown


Advantages Of A Drawdown

An income drawdown is most suitable for profit-driven individuals who can foresee a continuous growth rate of their fund due to different types of business transactions.

The advantages of a capped drawdown include the following:

  • Take either a tax-free lump sum2  or a regular income upon retirement
  • Flexibility on the amount of income received subject to an annual maximum
  • Funds can still be used for investments to allow for greater interest growth
  • Funds can be passed on to beneficiaries

The advantages of a flexible drawdown are the same except that there is no annual maximum for the income that the plan holder receives.

Disadvantages Of A Drawdown


Disadvantages Of A Drawdown

Pension information

The main disadvantage of the two types of drawdown is that the fund is vulnerable to losing value due to poor investment turnouts and inflation-related causes.

If you are considering using drawdown, you can seek expert advice from one of our reputed financial advisers3  to ensure that you are making the best financial decision to satisfy your specific lifestyle needs and business expectations.

Pension Entitlement And What You Should Know


Pension Entitlement And What You Should Know

It is important to know about the different types of plans that would match your individual needs and expectations. We’ve prepared a detailed head-to-head comparison between qrops and sipps. This way, you can find out what pension entitlement you want to enjoy during old age. Read on to find out more about it.

Basic State Pension (BSP)


Basic State Pension (BSP)

The maximum available pension entitlement from Basic State Pension (BSP4 ) is £107.45 per week for 2012-13. When you have reached the State Pension Age (SPA5 ) and you have not paid enough National Insurance Contributions (NICs) or have not satisfied the maximum qualifying years, then you will get a lower amount subject to computations. Moreover, you may be entitled to a BSP increase of up to £64.40 a week depending on the NICs of your spouse or civil partner. Read our in depth article for Old Age Pension.


State Second Pension (S2P)

Your pension entitlement from a S2P will be based upon on your earnings between the Lower and Upper Earnings Limits. Another factor would be whether you had contracted-out through a plan or not. The S2P was first established in 1978 but it has revised its calculation, since 6th April 2002, to grant more benefits to low and moderate earners.

Graduated Retirement Plan


Graduated Retirement Plan

Your graduated retirement benefit’s dependent on the number of contributions you have made from April 1961 to April 1975. For every graduated contribution of £7.50 (male) or £9 (female), you are entitled to 12.51 pence. After 5th April 2010, women of State Pension Age will be entitled to the same graduated retirement benefit as men have. Currently, contributions from the plan are being divided by £7.50.

What's Pension Credit

What’s Pension Credit?

It is a way of providing income to anyone 60 years old and above of at least:

  • £142.70 a week (single individual)
  • £217.90 a week (spouses/civil partners)

Although it’s the applied pension entitlement, you can get an additional £32.60 and £58.20 a week if you are a registered carer and a registered disabled person, respectively. Pensioners who are more than 65 years old can also receive additional benefits up to:

  • £18.54 a week (single individual)
  • £23.73 a week (spouses/civil partners)

Once you reach the age of 80, your state pension income will get a 25 pence increase each week. You can find our article on Pension Rates very beneficial for your pension plans.

Pension Entitlement for Dependants


Pension Entitlement for Dependants

If you have dependent children, your rate is:

  • £8.10 for the oldest child
  • £11.35 for each other child who is entitled to Child Benefit from the state

If you have a dependent spouse, civil partner or child you are looking after, the rate will be £61.85. All the benefits for dependants can only be given to you if you qualify to receive such before 5th April 2003. From 6th April 2010, you will not be entitled to these increases. If you are already getting the increased rate at 6th April 2010, you will continue to receive this amount if you meet the conditions up to April 2020. You can contact us and speak to our reputed financial adviser for more information on pension entitlement.

Read More About Eligibility And Advantages Of Foreign Pensions.

You may also like

Editorial Note: This content has been independently collected by the EveryInvestor advisor team and is offered on a non-advised basis. EveryInvestor may earn a commission on sales made from partner links on this page, but that doesn’t affect our editors’ opinions or evaluations. Learn more about our editorial guidelines.
Taylor Holt - 300x300

Written by
Taylor Holt
Estate Planning Expert

Taylor Is Our Resident Estate Planning Expert. He Knows That Everything Revolving Around Wills or Funeral Planning Can Be a Sensitive Subject That People Don’t Like to Discuss. But He Also Knows How Important It Is to Know All There Is to Know About It. Taylor Makes It His Mission to Spread Awareness About Estate Planning, and We Believe Everyinvestor Is the Best Platform to Do That.

Monique - 300x300

Written by
Monique Pittman
Pensions Expert

Monique Is Our Resident Pensions Expert. Many People Postpone Planning Out Their Pension, Thinking That Is Something They’ll Have to Worry Much Later in Life. Monique Knows How Important It Is to Start Planning Your Pension Early, and She Wants You to Know It Too!

Pension Entitlement

Written by
Lisa Schilling
Insurance Expert

Lisa Is Our Resident Insurance Expert. She Knows How Important It Is to Be Ready for Any Scenario, Especially When a Family Member Is Involved. Nobody Likes Being Found Unprepared in a Tough Situation! Lisa Can Find the Best Insurance to Cover Your Every Need, Present and Future.

Doyle Edwards - 300x300

Written by
Doyle Edwards
Mortgages Expert

Doyle Is Our Resident Mortgages Expert. He Comes From a Long Line of Financial Gurus, and It Truly Shows. Despite His Young Age, There Is No Question He Cannot Answer When It Comes to Mortgages, and His Ability to See Outside of the Box to Find the Best Mortgage Deals Is Truly Impressive.

jason stubbs 300x300 1.jpg

Written by
Jason Stubbs
Equity Release Expert

Jason Stubbs Is a Specialist in the Equity Release Sector. He Enjoys Helping Older People Who Are Struggling Financially Get Out From Under Financial Pressure.

rachel w.jpg

Rachel Wait
Personal Finance Journalist

Rachel is an experienced finance journalist and editor with a particular interest in personal finance and consumer affairs. She has vast experience writing about money issues, property, insurance, and consumer affairs, and you’ll find her articles regularly featured in top media and newspaper publications.
francis.jpg

Reviewed by
Francis Hui
Senior Risk Manager

Having held various high-level roles across the industry, Francis is truly an expert in aiding UK citizens in their financial decisions and risk analysis. His unique insight and statistical knowledge make him the perfect person to help you take your financial future to the next level.
Mark Patterson

Written by
Mark Patterson
Mortgage Expert

Mark Patterson is a well-known expert in mortgages. He has been working as an expert for over 15 years, and he specializes in the UK mortgage market.
kath icon.png

Katherine Read
Consumer Affairs Writer

She writes on the topics of equity release, home reversion, and mortgages.

Nicola Date

Nicola Date
Writer & Journalist

Nicola is a financial writer for EveryInvestor and is passionate about the opportunities that equity release can open up for homeowners. Her extensive business experience and deep understanding of the industry means that she’s always up-to-date with the latest developments.