What is income drawdown and is it a good option for you?

Following the introduction of pensions freedom in 2015, local independent financial adviser, Ben Morris, highlights several issues to consider before making a decision about whether to take an annuity or opt for income drawdown:
With drawdown you control your own retirement income instead of getting a regular, set sum from an annuity provider.
Your fund remains invested and you take as much as you want and can vary that amount whenever you want. This is in contrast to an annuity, where the level of income is locked in once you sign.
With an annuity you sell your pension fund in exchange for the promise of a lifetime income. With income drawdown, you continue to own the fund, which means you control how and where it is invested and it also remains part of your estate on death, so you can pass it on to your family. However, it is possible for your pot to run dry if you take out too much unlike with an annuity, where the providers make sure you have enough cover until your death.
If you are in income drawdown you can purchase an annuity at any time, but most annuities are irreversible – so once you choose that route you are in it for the rest of your life. Annuity rates have also been hit hard too, although they have rallied over recent months.
You may choose income drawdown to buy time to observe the markets, so you can, for example, purchase an annuity if the rates increase.
What you hope to pass on to your loved ones is another consideration, because although some annuities come with death benefits most do not. With income drawdown you can pass remaining funds on when you die.
A 55 per cent tax rate that applied to pension pots in drawdown left to children if the owner dies was scrapped. Instead, beneficiaries either pay no tax if the owner dies before age 75, or their normal income tax rate if the owner dies at 75 or over.
With annuities the capital is usually lost after the death of you and your spouse – although there are some available which can be passed on – and final salary pensions which tend to work in a similar way.
With income drawdown, your fund remains part of your estate rather than going to an insurance company.
There may be some complicated decisions to make, which means it would be good sense to talk to an independent financial adviser before taking any action.
For a review of your pension savings or to discuss income drawdown, contact Ben Morris on 01745 798260 or email ben@morrisfinancial.co.uk

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