A drawdown pension is a way of getting pension income when you retire while allowing your pension fund to keep on growing. Instead of using all the money in your pension fund to buy an annuity, you leave your money invested and take a regular income directly from the fund. This means that any money you don’t withdraw remains invested, giving you the potential for your pension fund to continue to grow. The key features of a drawdown pension include:
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Flexibility: You can choose when you take an income and can also choose to buy an annuity or an alternative retirement product with your savings at any time.
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Investment: You will need to decide how to invest your pension pot, and it’s important to regularly review your investments.
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Risk: Drawdown is a high-risk choice because the stock market can go up or down, and you could end up with far less income than youve planned for.
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Tax: It’s important to consider how much you withdraw from your drawdown pension and when you do so to ensure you don’t move into a higher tax bracket.
Before April 2015, the pension drawdown rules were different, and you could take drawdown in one of two ways: either a capped or a flexible version. However, since the pension freedoms were introduced in 2015, the only drawdown option open to new retirees is flexi-access drawdown.
It’s important to note that not all pension schemes or providers offer pension drawdown, and even if yours does, it’s important to compare what else is on the market. Charges, the choice of funds, the support, and flexibility they offer might vary from one provider to another.
