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Income drawdown

Income drawdown is where you leave your pot invested and take an income directly from it, instead of using the money in your pot to buy an income (an annuity) from an insurance company. Income drawdown is also known as an unsecured pension. 

As the rest of your pot remains invested, it will continue to benefit from any investment growth. You may, at any time, use whatever is left in your pot to buy an income (an annuity) from an insurance company. You can also take up to 25% of the amount you move into income drawdown as a cash lump sum. However, your scheme or provider may insist that you buy an income at 75. You should check this out with your scheme or provider. 

You do not have an automatic right to income drawdown. Your scheme or provider does not have to offer you this choice. 

You do not have to take a minimum amount of income from your pot. You can leave your pension pot untouched for as long as you want to, without taking any income.

The maximum amount of income you can take is equal to an amount set by the Government. It is 150% of the income someone of your sex and age could buy as an annual annuity, using rates set by the Government.  

Your income will usually be compared against the maximum income every three years until you are age 75, then every year. The maximum income will be based on the Government rates for someone of your age at the time of each review.

You may be able to take a cash sum after you reach 75, if you have chosen to set aside funds for income drawdown at the same time, even if you decide not to take an income.

You generally need a large fund value to take income drawdown. You need to check with your scheme or provider what minimum fund value they will accept for this purpose.  

It you are thinking about using your pot for income drawdown, you should seek independent financial advice. You can click here to find out more about choosing an independent financial adviser.

Click here to find out about the tax rules for income drawdown.

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