Income Drawdown

As an alternative to purchasing an annuity, you can chose to leave your pension fund invested and draw a taxable income from the fund. You will usually have the ability to take 25% tax free lump sum from any portion moved in to the income drawdown product, the remaining fund is available to generate an income for you in retirement.

Your fund will be invested in a range of different assets which suit your risk profile. The careful management of the fund will ensure that you can successfully continue to make withdrawals without significant capital erosion. Regular reviews of the performance and withdrawals being taken is important to maintain the optimum strategy.

Income drawdown allows you to choose the income level you wish to withdraw from your pension ranging from no income at all up to a capped maximum income, known as the GAD (Government Actuary Department Maximum).

The maximum income you can draw is roughly equivalent to the income available from a level single life annuity bought using the same fund. It is calculated at the start of your income drawdown plan using GAD tables which use your age and 15 year gilt yields to calculate the income available from your fund.

The income limits calculated at this point are fixed until the next review (3 years), although you should monitor any income you take more frequently. As long as you stay within the maximum limit you can control how much income you take and when you take it. Any income is subject to tax at source, on a PAYE (Pay As You Earn) basis.