Income Drawdown (or Unsecured Pension) is the name
given to the facility to continue to keep your retirement savings
invested and take an income each year rather than buy an annuity. This facility can only be continued to
age 75, with transitional rules in place from 22 April
2010 to the 5th of April 2011 increasing the age to
77, at which time an annuity has to be bought or the money
transferred into an Alternatively Secured Pension (ASP).
From 6 April 2011 the rules will
change again - the government is currently running a
consultation on the new rules to apply from this date. We will
update this page when details of the new regime are
published.
The income that can be taken from a drawdown arrangement can be
varied each year between a minimum and a maximum. The minimum is
£0 and the maximum is 120% of a pension calculated according
to tables produced by the Government Actuaries
Department (GAD). These tables are based on the amount your
fund would buy as an annuity based on your life only and with no
allowance for any future increase. The maximum amount needs to be
recalculated every 5 years.
Further information about these GAD tables is
available from the Revenue's website.
Tax Free Lump Sum
Taking a tax free lump sum is a once only event. If you
enter into an income drawdown arrangement, you can take your
tax free lump sum at the start or wait until you come to buy
your annuity. You cannot take a tax free lump sum more than
once.
The maximum lump sum you can take is 25% of the fund at the
time.
Taking a lump sum is not possible after age 75
(changing from 6 April 2011 with transitional rules in place from 22 April
2010 as detailed above). So, if you move from income
drawdown into an alternatively secured pension at 75, without
having taken a lump sum, it will then be too late.
Income Drawdown Providers
We are not authorised to give specific financial advice and so
cannot recommend either a particular company or product to you.
However we also recognise that it is hard to find a list of income
drawdown providers. The following list of providers has been
supplied to us by the Association of British Insurers (ABI) and
covers all the providers who were active in the market in the last
year. This list is correct as at June 2010. TPAS cannot verify
whether it is complete or current as providers may join or withdraw
from the market at any time. We also cannot comment on specific
details as such whether a company will deal direct with a member of
the public, whether they insist on a financial adviser being used,
the minimum fund sizes they will accept etc. You would need to
check with each individual provider what their particular terms
are.
- AEGON Scottish Equitable
- American Life
- Aviva
- AXA Sun Life
- Clerical Medical
- Friends Provident
- Hargreaves Lansdown
- Legal & General
- Lincoln Financial
- LV= (aka Liverpool Victoria)
- Merchant Investors
- Prudential
- Royal London
- Scottish Widows
- Skandia Life
- St James's Place
- Standard Life
- Winterthur Life
- Zurich Assurance
Note: This list covers normal drawdown plans.
For a list of "guaranteed" or "third way" drawdown
providers please go here.
Q & A's
The individual is able to choose to purchase the pension at the
time when pension (annuity) rates are favourable. If investment
growth is achieved on the residual funds together with the fact
that annuity rates increase with age, a higher pension may
ultimately be purchased than could have been secured at outset.
Also, many individuals are reluctant to purchase a pension from an
insurance company since the whole of the purchase price is not
returned on death, whereas under income drawdown the residual fund
can be returned (see next question).
No. An Income Drawdown policy is not able to accept
contributions.
A surviving spouse or dependant has three options:
- take a lump sum subject to 35 % tax
- continue income withdrawal
- purchase an annuity
Depending on the scheme rules/policy terms, a dependant's
pension may be deferred until a later date.
If investment performance on the fund remaining is poor, the
level of income payable may reduce. The level drawn is reviewed
annually. There is thus no guarantee that the pension ultimately
purchased will be higher than the amount that could have been
purchased at outset.
The administrator of the income withdrawal arrangement will
charge fees, often on a time cost basis, and there may also be
investment management fees, and thus the costs of these
arrangements can be high. Whilst it is difficult to be precise, it
is generally agreed that a fund should be at least £100,000
before income withdrawal is a viable option.
No, HM Revenue & Customs rules will not allow further
contributions to be made once the arrangement has begun.
Transfers are allowed from other Personal Pension Plans or
Stakeholder schemes. However, it will be up to the terms and
conditions of the transferring/receiving scheme whether or not a
drawdown arrangement can be transferred to another arrangement. If
a transfer is allowed, all the sums or assets held under a
transferring arrangement can only be transferred to a new
arrangement and not to an existing arrangement.
