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.

• Income drawdown is one of the most flexible retirement options available but this does make it more complex and not suitable for everyone.
• It offers potential for growth and an opportunity to pass your pension fund on to your heirs when you die. Yet there are big drawbacks and risks.
• One of the most attractive features of income drawdown is the ability to retain control of your investments. You continue to manage your pension fund and make all the investment decisions.
• Providing the fund is not excessively depleted by 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.
• 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 you may be able to continue into Alternatively Secured Pension (ASP) with more restricted income and death benefits.

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.