Pension fund withdrawal (income drawdown)

Under legislation introduced in 1995 it is now possible to invest your accumulated retirement fund(s) in a Pension Fund Withdrawal policy. Under this type of arrangement it is possible to take up to the maximum allowable tax-free cash lump sum, as long as this is done at outset, with the balance of the fund invested in the new facility. You may then take income payments until age 75 when a conventional annuity must be purchased. As you would expect there are certain rules related to this type of arrangement.

The amount of income you are allowed to take each year must fall between two limits set by the Government Actuary's Department (GAD). The maximum limit (100%) is taken from a table produced by the GAD and is related to your age, sex and the type of pension money to be used.

The minimum amount you are allowed to withdraw as an income each year is 35% of the maximum. These two figures are merely limits and it is possible to elect to take an income at any level between the two, the amount of income withdrawn each year can be varied up or down within the main limits and the institutions that provide these products will usually offer a choice of income payment periods from annually to monthly.

The limits must be reviewed every three years and, on the third anniversary, the limits are re-set using the same tables and applying the new maximum (100%) rate, as defined by your then age, against the balance of the retirement fund remaining. The minimum figure is again 35% of the maximum. NB..The only opportunity to take tax-free cash is at the inception of the plan.

Pension Fund Withdrawal involves extra costs and extra investment risk compared with buying an annuity straight away. For this reason, it is usually suitable only if you have a pension fund or transfer value of over £100,000 (after taking any lump sum) or you have other assets and sources of income to fall back on.

Questions - Contact us by email or telephone on 0207 407 8787.