Income Drawdown


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Income Drawdown (Unsecured Pension)

Under the option of an Unsecured Pension plan (previously called income drawdown) you can access your Pension Commencement Lump Sum (PCLS) without necessarily having to take an income until you need to. This means your pension fund can remain invested in a tax efficient environment.

If required an income can be taken from the invested pension fund. This income may vary between the maximum and minimum as set out by pension legislation. The minimum is £0 per annum and the maximum is derived from tables published by the Government Actuaries Department and is based on your fund size, age, sex and the current gilt yield. Once in Unsecured Pension the maximum limit is revised every five years.

You must purchase an annuity or move to an Alternatively Secured Pension plan by age 75.

Advantages
• You are able to take all of your PCLS (tax free cash lump sum) entitlement at outset.
• You do not receive a set income but have the flexibility, as long as it’s within the maximum allowed, to vary it to suit your personal circumstances.
• It will give you a more flexible income as opposed to purchasing an annuity.
• You may have the flexibility to mitigate your liability to personal income tax in certain years.
• You will have the potential to benefit from good investment performance in a tax efficient environment and to exercise control over your own investment portfolio.
• It provides improved death benefits options compared with other retirement products

Disadvantages
• Taking withdrawals may erode the capital value of the fund, especially if investment returns are poor and a high level of income is being taken. This could result in a lower income when the annuity is eventually purchased.
• The investment returns may be less than those shown in the illustrations.
• Annuity rates may be at a worse level when annuity purchase takes place. Although annuity rates generally increase with age, they have fallen dramatically during the past 15 years and this trend may continue.
• As there is an investment risk this product is only suitable for individuals with a medium or higher attitude to risk.
• Increased flexibility brings increased costs and the need to review arrangements on an on-going basis.
• There is no guarantee that your future income will be as high as that offered by an annuity purchased today.
• You may be prevented from withdrawing your chosen level of income in the future due to the action of the GAD limits.
• If you purchase an annuity, you may benefit from a cross subsidy from those annuitants that die relatively early. This cross subsidy is not present with Unsecured Pension and so to provide a comparable income a higher investment return will be required.
• Increased flexibility brings increased costs and the need to review arrangements on an on-going basis.

Suitability
Unsecured Pension can be suitable for a whole range of differing needs and financial situations however, it is generally accepted that the potential disadvantages and the inherent risks involved require the individual client to be a relatively sophisticated investor, who is capable of fully understanding the risks. Given this, the contract can be used as a tax planning tool, a means to accessing pension fund tax free cash without having to take the full taxable income and as a means for offering greater flexibility with both income and death benefits.

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