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For some people the early years of retirement are the years when they can really enjoy the
benefits of giving up work and doing the things in the past that always came way down the list
to work such as family commitments, enjoying trips of a lifetime or simply being able to spend time
with loved ones, whatever makes people happy!

However not all pension options at retirement give you the most money when you need it the most
i.e. when you're young and fit enough to benefit from it.

Income Drawdown

More Income and tax free cash
When it comes to taking an income from your pension, different pension income options suit different people; this is why at

My Pension Expert we will try to find the right income options to suit your circumstances and more importantly your requirements.

For some, being young enough to enjoy retirement is a priority, taking the most income in early retirement while they’re fit and healthy enough to enjoy the benefits of being retired.

 

Traditionally, pension income will slowly increase over time, giving you more income the older you get. Unfortunately, for some, this means they get the most income when they can enjoy it the least!

 

For those people who require the most income at retirement a potential option is income drawdown.
Income drawdown allows you to take the tax free cash amount from your pension fund of 25%, while the rest of your pension fund remains invested. There’s a huge choice of investment funds available giving your pension the best chance on continued growth.

 

Please read the RISKS section on the bottom right of this page.

From the invested element you can choose to take an income. The amount you can withdraw from an income drawdown contract can be varied between a lower and upper limit. The maximum is based on your age, and rates set by the Government Actuary Department. These rates are known as GAD rates, and these also depend on Gilt yields. This income can be much higher initially, than the amount offered from traditional options like the purchase of an annuity.

 

Please remember poor investment performance may mean that initially high levels of income are unsustainable in the longer term.

 

Case Study

Bob Johnson 53 is a divorcee with no dependent children and has worked most of his life in the coal mines of South Yorkshire. After many years of hard work Bob has decided to retire and enjoy life to the full. Following previous adventure holidays around the world Bob would like to enjoy retirement through travelling in Thailand and visiting his friends Australia!

 

 

Bob had an occupational final salary pension with the Mine Workers Pension Scheme and his main requirement was for the most possible income in the early years of retirement. With the help of My Pension expert he looked into the benefits of income drawdown for his pension income.

When comparing his options we found the following.

 

In this instance Bob Johnson has an attitude to investment risk (ATR) which is described as Moderately Cautious. This ATR is in line with the types of underlying assets needed to produce returns sufficient to keep pace with the erosion of pension capital (through taking income).
In this example Bob has chosen to take the maximum income allowed under current regulations. This being 100% GAD (Government Actuarial dept Rates)
Warning for people with lower ATR’s than stated there could be a danger that the underlying assets may not provide returns sufficient to replenish capital where maximum income is taken.

* Source AXA Elevate March 2010.

 

TOTAL PENSION FUND AT RETIREMENT

Income drawdown

1. The tax-free lump sum can be taken
2. Income drawdown allows the income to be varied
3. Income drawdown permits you to just take the lump sum and no income if you want, (if you're under age 75)
4. Income drawdown avoids buying an annuity completely, however an annuity or ASP must be used by age 75.
5. Your don’t have to decide on whether to include spouse’s benefits or other such options with an income drawdown contract
6. The fund stays in a favourable tax environment within the drawdown contract
7. The fund remains invested so it could grow further The income is not guaranteed and could go down
8. Income drawdown requires ongoing monitoring of the plan
9. Charges are higher for income drawdown than annuity purchase

Risks

 

• Drawdown will not be suitable for all customers. Unlike an annuity there is no guarantee that an income will be paid for life. Withdrawals may erode the pension fund and annuity rates may be lower in the future, leading to a reduced level or loss of retirement income. Drawdown contracts will generally be subject to higher charges than purchasing an annuity.
• The value of investments and income can fall as well as rise and you may not get back the full amount invested.
• Particular attention should be paid to any potential loss of benefits if transferring funds from an occupational pension.

Make sure you get the most pension income. Find out FREE today how much extra you are entitled to by clicking here to fill out our simple form!

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