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What Is Income Drawdown?

Your Retirement Plan Made Simpler

Wondering what you’ll do when you retire? Income drawdown might be the way to go!

Income drawdown is an option for you to use your pension when you want to retire. Meaning, you leave your pension invested, and you cash in when needed. It’s the most popular alternative to buying an annuity.

What Are My Retirement Options?

A defined contribution pension opens up a variety of things you can do with your pension pot when you choose to retire:

  1. A lump sum of up to 25% can be cashed in without tax. An amount larger than this will be taxed.
  2. Buying an annuity is another option with the rest of your pension funds. A guarantees an income for a specific period.
  3. Otherwise, moving your funds into income drawdown is also a good option. Your pension funds will still be invested, and you can cash in taxable income.

How Does Income Drawdown Work?

Income drawdown1 funds get invested in multiple shares like cash and bonds. You can cash in money from the fund for your retirement.

All new income drawdown product is now ‘Flexi-access drawdown’ since April. This means that you can decide on the amount of money to cash in annually. However, you’ll have to pay income tax (after your first 25% tax-free withdrawal).

The Pros & Cons Of Income Drawdown

Pros and cons to income drawdown2 are a given.

Pro: it’s flexible. You can cash in a retirement income whenever you choose to. Better yet, if markets are buoyant, it will increase the value of your pension pot. Income drawdown is also amazing if annuity values are low. Plus, if you die before the age of 75, your pension can be inherited without your inheritors paying tax on it. Annuities can’t be inherited.

Con: your pension can decrease in value if its investments perform badly. Your pension funds can also run dry if you cash in too much or if you live longer than you initially thought. On the other hand, an annuity guarantees a fixed income. Therefore, being much more anticipated.

Just remember that with income drawdown, you can decide to buy an annuity with the pension money that’s left.

PensionBee helps you to control of your saving. All your pensions are combined into one easy accessible pension plan.

Common Questions

What Does Income Drawdown Mean?
Is Drawdown A Good Idea?
How Do I Get A Pension Drawdown?
What Else Should I Consider When Getting My Pension?

Conclusively

Income drawdown, although having pros and cons, can be quite a helpful tool to help you in your retirement! Your investment can keep on growing, and you can get a monthly income at the same time!

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