![]() The pot remains invested in the stock market, so if the market performs badly, it can shrink even if you don’t take any income. So unlike an annuity (which pays a guaranteed income for life), a drawdown scheme can run out of money. The main thing to remember about drawdown is that your pension pot is of a limited size. If you die later than that, they will still inherit the fund but must pay income tax on the money they take from it (the tax will be charged at their marginal rate). Your nominated beneficiaries will inherit your remaining drawdown fund tax-free if you die before the age of 75. Any person named in this way is a ‘nominated beneficiary’. When setting up any pension or drawdown scheme, you must specify the person(s) who will receive any remaining benefits in the event of your death. This is particularly advantageous for your beneficiaries if you happen to die sooner than expected. Pensions drawdown free#This means that your family can inherit any unspent pension pot when you die, free of tax. However, the reverse can also be true – see ‘What are the disadvantages of drawdown?’Ī significant benefit of drawdown is that you retain ownership of your pension pot (unlike with an annuity, where you surrender the pot). On the other hand, if you have a low-spend year, you can reduce your income and lower your tax bill at the same time.Īnother possible benefit of drawdown is that it has the potential to deliver a higher overall income than an annuity. If you need to spend more in a particular year you can increase the amount of money you take. The main upside of drawdown is that you can vary your income. This can be a challenging decision to make, which is why it’s so important to seek independent financial advice when considering or choosing a drawdown scheme. The blend of investments in your drawdown fund can therefore be crucial – you want a mix of assets that can deliver steady growth over the long term, while being as resilient as possible in the face of stock market dips. This can deliver strong growth, but can also put you at risk of losing money. You will draw money out of this fund over the years to come, so the fund itself needs to be set up to try and make your pension savings last as long as possible.īeing invested in assets such as stocks & shares, your fund will rise and fall with the movements of the stock market. When you set up a drawdown scheme, the money accumulated in your pension pot is moved into a new set of investments, called a fund. All mentions of drawdown here therefore refer to flexi-access drawdown, unless stated otherwise. Since this is now the only kind of drawdown that is available, it is usually referred to as just 'drawdown'. If you have a capped drawdown scheme in place, it lets you take up to 150% of the income you could have received from an annuity, for as long as your fund lasts.įlexi-access drawdown has no such cap, so you can take as much income as you like for as long as your fund lasts. The term 'flexi-access' was originally added to distinguish it from something called 'capped drawdown', which is no longer available except to people who set it up before April 2015. When people talk about 'drawdown' these days, they usually mean flexi-access drawdown. What is the difference between flexi-access drawdown and capped drawdown? You can take as much or as little as you like, within the limits of your pension pot – once your savings are gone, they’re gone. The withdrawals are classed as income (so are subject to tax). There are several ways to access this money, and drawdown is one of them.ĭrawdown allows you to make withdrawals of money from your pension pot. ![]() You can use the money in your pension pot(s) to support you in retirement. If these are defined contribution pensions (as opposed to defined benefit) then you will end up with one or more pension pots. Over your career, you will hopefully have built up pension savings in either workplace pensions or private ones. ![]() Pension drawdown is a way to take a flexible income from your pension savings.
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