What is income drawdown?

Income drawdown is an alternative to buying a lifetime annuity. It allows you to draw an income directly from your pension fund, whilst the fund remains invested.

One of the most attractive features of income drawdown is that it allows you to retain control of your investments and choose the amount of income you draw up within limits.

You continue to manage and control your pension fund and make all the investment decisions. Providing the fund is not depleted by excessive income withdrawals or poor investment performance, it may be possible to increase your income later in life. However, if you get it wrong your income may be reduced.

If you die whilst in income drawdown the remaining fund can be passed on to your heirs, less a 35% tax charge, or can be made available to provide an income for your dependants.

You can use your income drawdown fund at any time to buy a lifetime annuity. If you want to continue drawing an income directly from the fund when you reach your 75th birthday then it can continue into alternatively secured pension (ASP) although income is restricted and death benefits are limited. The fund is automatically moved to ASP if you have not set up an annuity by age 75.

The income drawdown service has been excellent. I found that HL handled all the detailed paperwork very efficiently and provided clear concise assistance on the phone for any enquiries.

Christopher Southwick, Angus

At first glance, income drawdown might appear a saviour to those worried about the inflexibility and limited death benefits offered by annuities. However, with the benefits come big risks. In the worst case scenario your pension fund could be massively, if not completely, eroded meaning you have little or no private money to live on in retirement. It is therefore only a consideration if you are in a position to accept these risks.

If you are at all uncertain about the suitability of income drawdown we strongly recommend that you seek financial advice. Our advisory team would be happy to help you, for more information on their services please contact them on 0117 317 1690.