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Income
Drawdown
Income drawdown is an important retirement option worth considering,
particularly for individuals who have pension capital of at least £75,000,
invested in their pension funds.
Income drawdown plans were introduced following changes to Pension
law in 1995. The changes removed the previous requirement to purchase
an annuity at retirement. An income drawdown plan allows an income
to be taken directly from the pension fund itself.
Income drawdown enhances the flexibility in that annuity purchase
can be deferred until a time when it may be more suitable. Most
of the major insurance companies now offer income drawdown plans.
These plans still allow up to 25% of the retirement fund to be
taken as Tax Free Cash and no income needs to be taken unless required.
Income levels are determined by reference to annuity tables produced
by the governments' actuarial department. The maximum income allowable
is 120% of the highest level of income determined by the annuity
tables, the minimum income which can be taken is nil. These limits
allow further flexibility and so perhaps enable full retirement
from a working life to be gradually phased in. These plans are
categorised as 'unsecured' pension plans, currently an annuity
will need to be purchased, usually by the age of 77, however under the emergency budget (22nd June 2010) this requirement will be abolished from tax year 2011/2012. Tthere
is also a further option for individuals reaching the age of 77
years to consider - the purchase of an 'Alternatively secured pension'
plan.
Income drawdown plans are relatively complex and are not suitable
for everyone, but they can for some individuals offer a flexible
approach to retirement. Careful consideration must be given to
an individual’s personal circumstances, including the value
of their existing pension/s. You should seek independent financial advice from a suitably qualified adviser.
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