![]() You will not be able to go back into capped drawdown. If you exceed the capped drawdown limit, you will trigger flexi-access drawdown. If the maximum income is not taken in a pension year, the difference cannot be taken at a later date. Any income taken cannot exceed this limit but the amount can be varied from year to year. The maximum income that can be taken in a pension year (which starts when you first go into drawdown) is calculated by the Government Actuary’s Department. Capped drawdownĬapped drawdown is a form of income withdrawal. There are a number of different types of income drawdown, each with their own set of advantages and limitations. ![]() What are the different types of income drawdown? This is to make sure that you do not take more money than you need to and that your investment suitability is regularly reviewed. When you’re in income drawdown, seeking professional advice is essential and, in some cases, a legal requirement. Generally speaking, income drawdown could be a good option for people with a large pension pot and a reasonably high tolerance for investment risk as there could be a depreciation in the value of your original investment. non-pension savings and investments) to meet their basic needs. The amount of income you will receive is not guaranteed because it is wholly dependent on investment performance, so it will only work for people who have enough guaranteed income from other sources (i.e. Drawdown is extremely flexible but it is not without its risks. Who could income drawdown be beneficial for?Įssentially, income drawdown could work well for people who do not want to buy an annuity. Plan your withdrawals around your other sources of income.Increase or decrease your income in line with any changes to your lifestyle.The main advantage of going into income drawdown is that your pension savings are not impacted by poor annuity rates and instead they could benefit from investment growth.Īs drawdown allows you to take an income directly from your pension, you have the freedom to choose how much income to take and when to take it. What are the benefits of income drawdown? As with any type of investment, the value may fall as well as rise, so you could end up with less than you originally invested. It is, however, important to bear in mind that while this is the desired result, it isn’t always the reality. Not seeing your capital fall in value is the desirable outcome with income drawdown plans. Ideally, you will end up with the same amount of money in your pension that you had at the outset. The idea is that you will draw out an income that is equal to the amount of investment growth on your pension fund. Going into income drawdown allows you to draw an income from your pension and leave the rest invested, with the aim that it will continue benefiting from investment growth. ![]() It was first introduced in 1995 for the purpose of preventing people from locking themselves into very poor annuity rates. While it has become a popular option for taking retirement income since the introduction of Pension Freedoms in 2015, income drawdown is not new. Income drawdown is an umbrella term that encompasses all the different types of drawdown, including capped drawdown, flexi-access drawdown, phased drawdown and tax-free drawdown.
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