Cheesman & Groves Ltd now Absolute Financial Management Ltd

Income Drawdown

Income drawdown plans were introduced in 1995. The changes removed the requirement to purchase an annuity at retirement. Income drawdown allows an income to be taken directly from the pension fund itself.

Unlike Phased Retirement the income is taken direct from the fund. The maximum level of income is set by the Government Actuary's Department (GAD) based on the size of the fund, age, sex and current gilt yields. The GAD rate is broadly equivalent to the equivalent single life annuity that you could have purchased. The maximum income can be no more 150% of the GAD rate. The rate is reviewed every 3 years.

Since April 2015 there is now much greater freedom to choose how you use your pension fund and the rules regarding income drawdown are now largely irrelevant as there is so much flexibility in how you withdraw money from your pension. See New Rules About Pensions.

Unsecured Pension

Unsecured Pension (also known as Income drawdown) is an important retirement option worth considering, particularly for individuals who have pension capital of at least £100,000.

Pension Fund Withdrawal plans were introduced following changes to Pension law in 1995. The changes removed the previous requirement to purchase an annuity at retirement. Pension Fund Withdrawal allows an income to be taken directly from the pension fund itself.

Pension Fund Withdrawal enhances the flexibility in that annuity purchase can be deferred until a time when it may be more suitable. Most of the major insurance companies now offer 'Income drawdown' plans. These plans still allow up to 25% of the retirement fund to be taken as Tax Free Cash.

Income levels are determined by reference to annuity tables produced by the governments' actuarial department. The maximum income allowable is 120% of the highest level of income determined by the annuity tables, the minimum income which can be taken is nil. These limits allow further flexibility and so perhaps enable full retirement from a working life to be gradually phased in. These plans are categorised as 'unsecured' pension plans, eventually an annuity will need to be purchased, usually by the age of 75, although there is now a further option for individuals reaching the age of 75 years to consider - the purchase of an 'Alternatively secured pension' plan.  

Pension Fund Withdrawal plans are relatively complex and are not suitable for everyone, but they can for some individuals offer a flexible approach to retirement. Careful consideration must be given to an individuals personal circumstances, including the vlaue of their existing pension/s. We strongly recommend advice from us be sought if you are considering this option.