-- What is Pension drawdown? --
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What Is Pension Drawdown?
Often referred to as Income Release, Pension Release and Income Drawdown is simply a much more flexible alternative to buying an annuity.
Key points / regulations:
- aged over 55
- have a pension fund that has built to a suitable level
- can release a cash lump sum, tax free without having to retire or take an income from the fund.
In addition to the tax free lump sum, you are also allowed to take regular income withdrawals however, unlike the tax free lump sum, the additional withdrawals are taxable. The remainder of your pension fund will still continue to be invested in the normal way until retirement.
It should be said, however, that pension drawdown is not always suitable for everyone. There are many alternative methods of raising capital and these should always be taken into consideration. Don't forget that releasing funds from your pension early will inevitably have in impact on the value of your pension plan at retirement. As we've already mentioned you are allowed to take benefits from your pension funds from the age of 55 onwards without the necessity of buying an annuity. From when you start taking benefits from your funds and up until you reach 77 you can use pension drawdown to release both a tax-free cash lump sum and an income directly from your existing pension fund. What's left of the fund (after the release of the tax-free cash) remains invested as a pension fund and will continue to benefit from a tax efficient environment in the same way that it did prior to the pension drawdown.
How much of my fund can I release?
If you transfer your current pension scheme to a 'Pension Drawdown' (Unsecured Income) plan, you are entitled to release a one off, tax-free lump sum up to a maximum of 25% of the total fund value and then take an additional income from the invested fund up to a limit prescribed by the Inland Revenue. You can release less than 25% of the fund, if you wish, and you are not obliged to take any at all if you don't want to. However the tax-free cash MUST be taken at the same time that the plan is set up.
Changes to the pension regulations in April 2006 mean that there is now no minimum income level, so you don't need to take any income if it isn't necessary or required (eg, for tax reasons).
The maximum annual income you are allowed to take is pre-set by the Government Actuaries Department (GAD) which allows you to receive income between zero and the maximum on an annual basis. You are also allowed to vary the level of income from year to year.
For example you may choose to take no income at all in one year and take the maximum allowed in the next. The maximum income release level is reviewed every 5 years at which time you can increase or decrease your income. The revised level will depend on a combination factors including the fund value, your age and the official GAD rate at that particular time.
For more information call 08456 385 047 or email info@credencis.co.uk. Yoou can also fill out a pension advice contact form
