Rather than buying a guaranteed pension by way of an annuity you can use a ‘flexi access’ income drawdown plan.   Income drawdown is an option to use your pension to provide you with a regular income in retirement by investing the pot in a range of investments designed specifically for this purpose.  The fund would remain invested and you would draw an income directly from it. The fund can go up and down in value and the fund can run out. There are no guarantees.

We would look at cashflow projections and how long the fund could last if you take a certain level of income out.  This can be suited to clients who prefer greater flexibility along with the options to potentially preserve funds to pass onto their family.

Could be useful for clients who:

Want the flexibility to drawdown larger or small sums when they wish
Are interested in keeping their money invested for the chance to earn investment returns
Are comfortable in accepting some risk
How income drawdown works

You can normally choose to take up to 25% (a quarter) of your pension pot as a tax-free lump sum.

The remaining amount can be moved to investment funds that allow you to take an income in a flexible manner to suit you.

The income you receive could be adjusted as part of ongoing financial advice depending on the performance of your investments.

There are different types of income drawdown product:

Flexi-access drawdown – which was introduced from April 2015.  There is no limit on how much income you can choose to take from your drawdown pension pot.
Capped drawdown – This was available before 6 April 2015.  It has limits on the income you can take out.

Annuities

This is the traditional method under which you simply use your pension fund to buy a guaranteed annual pension income (which can be paid in monthly instalments) to be paid for the rest of your life. You can also include a continuing pension for your spouse if you wish so that you can be sure an income continues if you were to die before her.

Could be useful for clients who:

Are risk averse and need guaranteed income

Combination of Annuity and Income Drawdown

For some clients, a combination of income drawdown and guaranteed income by way of annuity.

A pension is a long-term investment. Your eventual income may depend on the size of the fund at retirement and future interest rates

When you take out an investment product your capital is at risk and the value of your investments can go down as well as up, so you could get back less than you invested. The tax treatment depends on the individual circumstances of each client and may be subject to change in future.

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