Taking Income Drawdown For and Against
Welcome to the Income Drawdown Section!
When approaching retirement and thinking about income drawdown it is important to look at all the factors. Look into death benefits, flexible drawdown, new rules, comparisons with annuities, tax free cash, the best providers, and IHT.
If you take an annuity young (especially early retirement) income may be much lower than if you went into Drawdown and took the annuity older. There are also inheritance tax benefits to drawdown. As with all investment decisions you must balance risk and reward . Income from drawdown is at the mercy of fund performance. ID is normally only appropriate if you have £100K+ in your pension pot.
Here are some reasons for and against going into income drawdown/ASP.
For Income Drawdown/ASP
- Unlike annuities, you are not forced into making a decision for life straight away
- The investment funds that are to be chosen are at your discretion
- If you were to die before you turn 75, your beneficiary will be able to withdraw the value of your pension in one lump sum although a 35% tax charge is added to this
- This is an extremely flexible form of investment with numerous options available
- You can plan out your financial requirements and tailor the income to be received to match them
- There is the possibility that your fund could grow beyond your expectations
Against Income Drawdown/ASP
- These are extremely complex with few people able to understand all the stipulations with independent advice from financial experts
- Your fund is reviewed every few years which can be inconvenient and change your financial plans
- Most investments require a large amount of initial capital and this may not be possible for those who have low value pensions
- Despite the fact that annuities are perceived to be poor value, it is often the case where income drawdown funds are worth less in the long term than annuities purchased on the first day of retirement
- If you were to withdraw too much money or else your investments do not perform well, your pension pot value could fall dramatically
- Investments could go bad and with no security, there is always the chance that the pension could completely vanish