Drawdown Pension Funds
Retirement is changing – many people continue to work past the traditional age of retirement.
This has lead to a steady growth in drawdown pension funds – which can provide flexibility for people who don’t want to be locked into an annuity, and who need to keep their options open in later life.
In this article, you’ll learn about the kind of funds that offer pension drawdown and what to bear in mind when considering one.
Here’s what you’ll learn in this article…
What are drawdown pension funds and how do they work?
A drawdown pension fund is an investment l vehicle which typically invests in the stock market, whilst providing you with a regular income facility. There are many to choose from and many providers that offer them.
‘Drawdown’ is the process in which you ‘drawdown’ money from your pension fund. It becomes available once you reach the age of 55 (or younger – if certain conditions are met).
You can take 100% of your pension fund drawdown in one go, or spread out the withdrawal process in whatever way best suits you. For example, you could withdraw all of the tax-free portion (25% of the total fund value) separately from the taxable portion, or choose a mix of the two.
Is this my only option?
The main alternative for your pension fund, other than income drawdown, is to buy an annuity. With an annuity, you exchange the entirety of your pension pot for a guaranteed income stream. This means that, unlike a drawdown, you get a guaranteed income stream either for life or for a fixed period of years.
However, this income stream may not be as substantial as what you could get from drawdown, and once you take out an annuity, the process is irreversible – so it’s not nearly as flexible as a drawdown scheme.
If you’d like to understand more about how drawdown pensions work and how they differ from annuities, give us a call on 0808 189 0463 or make an enquiry and we will arrange for an advisor we work with to get in touch.
What are the best funds for income drawdown?
Everyone’s personal circumstances are different, and this will dictate the choice you make.
In this regard, there are a few things to bear in mind when comparing drawdown pension funds.
This is a big one. Excessive pension drawdown charges can eat away at the value of your pension pot, but charges can vary massively from provider to provider.
For example: some funds may apply set up fees – others may charge for buying and selling investments, or drawing down money.
Certain funds will impose fees for changing how much income you want to drawdown from your pension fund, and others have unusually high annual management charges.
There’s a lot to look out for, and many funds don’t always make it clear in their marketing information. Solid professional advice could save you a lot of money in unnecessary charges, so make an enquiry to speak with one of the pensions experts we work with today.
The market is vast, and no single provider has access to all of it. But some providers offer more investment funds than others – which means that you can have more of a say in where your money is invested.
You want a provider that allows you to be as hands-on as you need to be – whether that means a ready-made portfolio, or advice on how to build a portfolio that best fits your needs and risk profile.
Ease of access and flexibility
Drawdown funds require a hands-on approach, which means that being able to easily access and manage your pension is important. For example, look for a well designed online interface, and a reasonable amount of allowable yearly withdrawals.
As we said, drawdown schemes can be complex – but some providers will offer more support than others. For example, regular market commentary and free guidance from in-house experts. Others may provide this, but will charge a premium.
If you get in touch we can arrange for an expert to speak with you in more detail about the options available to you for your pension fund so you can make an informed choice when you reach retirement.
Where can I find a pension fund drawdown calculator?
An income drawdown calculator can help you work out how long your pension fund might last. They’re available on some providers’ websites and the government’s pensions hub.
One thing to keep in mind when it comes to these tools is that they will usually only give you a rough idea of what your income drawdown pension fund’s performance is likely to be. Making an enquiry to speak with a pensions advisor is a better option, as they can put the numbers the calculator returns into context, conduct a free review of your pension set up and help you determine the best course of action.
Can I drawdown from the pension protection fund (PPF)?
Unfortunately not. If you’re in the PPF, you’re not able to transfer payments out to another scheme. So you can’t consolidate your pensions, or move your account into drawdown. It’s not known if this will change in future, but there may be other alternatives to consider – make an enquiry to speak with an expert pensions advisor for more information.
Speak to a pensions expert about income drawdown
If you have questions and want to speak to an expert for the right advice, call Online Money Advisor today on 0808 189 0463 or make an enquiry.
Then sit back and let us do all the hard work in finding the pensions expert with the right expertise for your circumstances. We don’t charge a fee and there’s absolutely no obligation to act on the advice you’re given.