PENSION DRAWDOWN, PHASED RETIREMENT, UNLOCKING A PENSIONPension drawdown, phased retirement, unlocking a pension, providing for retirement takes planning and you should seek advice from an independent financial advisor
If you are aged between 50 and 75, you may wish to consider pension drawdown (also known as pension fund withdrawal). Pension drawdown allows you to take your tax-free cash and get income from your pension fund without having to buy an annuity. This really can be a chance to have you cake and eat it, and can be particularly beneficial if you retire when annuity rates are low.
Start of article about pension schemes.
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If you opt for pension drawdown, your pension fund remains invested and you allowed to take as much income as you need from your fund subject to certain minimum and maximum limits. You take your tax-free cash at the beginning and the income is paid from you pension fund. When you are ready you can buy an annuity (annuities need to be purchased at age 75).
Benefits of pension drawdown:
- Tax-free cash at the outset
- Deferral of annuity until age 75
- Control over when to purchase an annuity
- Income flexibility
- Control over your investment
- An extra chance of investment growth
As your fund remains invested in the stock market the value of your fund can go down as well as up. As long as you understand the risks and feel comfortable with them, there are lots of reasons to choose pension drawdown:
- You need flexibility in the size of your pension income - for example if you are self-employed and wish to retire gradually
- You want to leave the majority of your pension fund to your heirs
- You are confident that your fund will grow more and you will get a better return
You should not confuse phased retirement (PR) with pension drawdown/pension fund withdrawal, although the effects of each are not dissimilar.
You may have a money purchase scheme that was segmented at outset, which means that the scheme is, in fact, lots of little schemes rolled into one. Each segment of the scheme is its own discrete pension, and you can take the benefits from each of them when you like, between the ages of 50 (55 from 2010) and 75. This is one way of gradually phasing in your retirement benefits.
You can use phased retirement in conjunction with pension drawdown, which could be particularly useful if you are self-employed or, indeed, if you plan to wind down your workload (and income) gradually over several years.
Pension unlocking may result in a lower level of benefit being paid out than if the policy is kept until the normal retirement date. Pension unlocking schemes are only suitable for a limited number of people and advice should be sought from a qualified Pensions Adviser.
For more information on choosing the most suitable retirement solution for your individual situation, please click here.
Pension drawdown and phased retirement, unlocking a pension and providing for retirement takes planning and you should seek advice from an independent financial advisor