Income Drawdown in Retirement
We get lots of enquiries from people who have already reached retirement age and want to know what changes if any, they can make to their income drawdown in retirement and how this will affect their pension.
To delve deeper into this area and find answers to this (and other) related questions, the article below looks at changes you could make to your pension savings both before and during retirement.
In this article we will cover:
- What options do I have for income drawdown at retirement?
- What changes can I make to my income drawdown plan in retirement?
- Can income drawdown cater for a phased retirement plan?
- Speak to a pensions expert about income drawdown
What options do I have for income drawdown at retirement?
Once you’ve reached the age of 55, you have the opportunity to begin taking drawdown payments from your pension fund, providing it is a defined contribution pension scheme (also known as money purchase).
Since April 2015, the income drawdown options available to you at retirement have become much more flexible and accessible than the traditional method of purchasing an annuity.
There are now two types of income drawdown to choose from:
This option allows you to take up to 25% of the value of your pension pot as a tax-free lump sum at the outset with the remaining 75% available to drawdown as regular pension income or as ad hoc payments as and when required.
Uncrystallised Fund Pension Lump Sum (UFPLS)
If you would prefer to spread the tax-free sum over regular payments rather than as one lump sum at outset then this option would suit your needs. With UFPLS, each drawdown payment has a 25% tax-free element with the remaining 75% liable for income tax at your marginal rate.
What if my existing pension provider doesn’t offer income drawdown at retirement?
In the UK, not every money purchase pension provider is obliged to offer a drawdown account facility for scheme members to use for their retirement income. If this is the case for you, don’t panic! You can simply transfer your pension fund to a provider who does.
Switching your pension provider can be quite a daunting and arduous task. It’s also likely that exit fees and set-up charges can apply for both exiting from your current provider and moving to a new one.
These charges can have an adverse impact upon your retirement savings. This is why it’s very important you seek professional advice before making any final decisions. This is where we can be of assistance.
Make an enquiry and we’ll put you in touch with an expert who can help you find the best drawdown pension providers.
What changes can I make to my income drawdown plan in retirement?
Once you’ve commenced taking your income drawdown in retirement or from age 55 (can be taken as a semi-retirement option) , the temptation could be for you to simply accept that whatever income you now receive is as good as it will ever get. This does not have to be the case.
There are a number of things you can still do to ensure your retirement income lasts as long as possible, such as:
- Manage the retirement income you need from your drawdown account
- Regularly review and monitor your income drawdown portfolio when in retirement (the advisors we work with can do this for you!)
- Be prepared to switch pension providers
Manage the retirement income you need from your drawdown account
It’s important, particularly in the early years of your retirement, that you plan out very carefully what amounts you will need to drawdown from your pension fund. The main benefit of a flexi-drawdown facility is the huge flexibility it offers from an accessibility perspective.
If you take your 25% tax-free lump sum at the outset and this amount is sufficient to cater for your living costs for the foreseeable future, it may be more prudent to defer taking any further drawdown payments until this money has all been used.
If other funds are needed, make sure the amounts you drawdown have been carefully accounted for to cover your income requirements.
Regularly review and monitor your income drawdown portfolio when in retirement
The key difference between income drawdown and a lifetime annuity is your drawdown fund is not guaranteed for life, therefore, the performance of the investment funds’ underlying assets will be crucial, as is your need to review how your fund is performing, at least on an annual basis.
Multi-asset funds which adopt a broader risk strategy by investing across many different asset classes, geographical regions and sectors are typically well suited for pension drawdown portfolios. Diversification will normally play a key factor in how a fund performs.
Portfolio reviews can be quite a complex exercise, therefore, it’s important you get assistance from an experienced pensions specialist. If you make an enquiry we can arrange for an advisor we work with to get in touch and review your existing drawdown portfolio with you and provide on-going advice after that.
Be prepared to switch pension providers
As with pre-retirement, you may also come to the conclusion in post-retirement that your income drawdown funds may be better served with an entirely different pension provider.
There are a number of reasons why a change of drawdown provider could be attractive, such as:
- Greater investment choices
- Charging structure
- Accessibility to fund performance and information (online)
- Drawdown flexibility
- Service and support infrastructure
Of all the above, the charging structure is the area which usually requires the most scrutiny. All providers’ charging structure will differ in some way and switching your provider could result in a significant cost saving for your drawdown fund.
It’s always recommended that you seek professional guidance before committing to any course of action resulting in a loss of benefits from your current scheme, which may not be available from a new provider.
Get in touch and we’ll arrange for an experienced pensions advisor to run through all the pros and cons of switching drawdown provider and help you reach any final decisions.
Can income drawdown cater for a phased retirement plan?
Yes, it’s definitely possible. Many people decide to reduce their working hours rather than stop working immediately once they reach retirement. Phased income drawdown can assist by topping up the income you have lost through your employment.
Speak to a pensions expert about drawdown in retirement
If you have questions and want to speak to an expert for the right advice, call us on 0808 189 0463 or make an enquiry here.
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.