Drawdown represents an effective way to earn a regular income during retirement by making use of your pension pot. It can allow you to draw income flexibly in line with your needs and requirements and allows for the income to be taken in the most tax efficient manner.

At Equilibrium, we can provide the expert advice you need to decide if drawdown is a suitable option for you and to help you select the right funds.

Find out more about the services we offer by getting in touch today. Do so by calling us on 0808 156 1176 or allow us to call you back by leaving your details via our online contact form. We have offices in both Wilmslow and Chester.

What is drawdown?

Drawdown is a method that provides greater flexibility to investors with regard to their pensions. It works by allowing you to take up to 25% as a tax-free lump sum every time you move your money into drawdown. You are able to draw taxable income directly from the pension as you please, as this will remain invested.

Many people who opt to utilise drawdown choose to take a regular income, which - depending on how well your investments perform - may need to be adjusted periodically. With recent legislation changes, people may also choose drawdown to potentially mitigate inheritance tax.

The two main types of income drawdown product are: 

  • Flexi-access drawdown

  • Capped drawdown

Flexi-access drawdown

Flexi-access drawdown became available in April 2015 and there is no limit on the amount of income you are able to take from your drawdown funds. These funds will be selected based on your attitude to risk and the objectives you are setting with regard your income.

Capped drawdown

This option was only available prior to August 6 2015 and, in contrast to flexi-access drawdown, there are limits on the income you are able to take out. The income cap is 150% of the income that a healthy individual of the same age could receive from a lifetime annuity.

Capped drawdown is closed to new applicants, but should you already use it, the existing rules will still apply, but the tax relief you are able to enjoy on pension savings in the future will be reduced.

How does drawdown work?

Through both flexi-access drawdown and capped drawdown, you get the significant benefit of tax-free cash. Usually, you will be able to take up to 25% of the fund you use for drawdown as a tax-free lump sum, with this cash taken at the start and not later. A benefit of a flexi-access drawdown is that if the whole pension is not crystallised, tax-free cash can be taken in chunks.

After this, the remainder of the pension remains invested however you have chosen to do this. From it, you can draw a taxable income, and it is up to you how much you decide to take and when you start or stop doing so.

It is highly recommended that you seek expert help when it comes to drawdown due to the complexity of the topic. For example, you may be able to combine income drawdown with other features that aim to secure greater income or growth. By speaking with the specialists at Equilibrium, you can decide which retirement planning option is the very best for you.

Contact us today

Contact the team at Equilibrium today to find out more about drawdown and whether this is a suitable option for you. We help many clients from in and around Manchester and Cheshire. To get in touch, simply give us a call on 0808 156 1176 or complete our online enquiry form and we will call you back.