Pension Income drawdown

You don't have to buy an annuity as soon as you retire - though you must take any tax-free cash before you are 75. However this does not mean you can't benefit from your pension fund in the meantime. Income drawdown enables you to keep your money invested and take out an income if you want to.

There is a maximum amount of income that you will be able to take depending on your age and fund value.

Benefits

• You can vary the amount of income you take (within limits set by the government).
• If the funds you've invested your money in perform well, you could even increase the amount of income you withdraw.
• You have a wide choice of funds in which to invest your money and you can move your money around if you want to.
• If you die, your remaining pension fund can be passed on to the beneficiaries you have chosen but will be subject to 35% tax.

Considerations

• If the funds your pension money is invested in perform badly, and/or you take too high an income, your pension fund will shrink. This will affect your future income.
• Factors, such as interest rate movements, may mean that annuity rates fall by the time you want to buy one.
• Income drawdown is more complicated and is riskier than buying an annuity. You might find it helpful to discuss this with a financial adviser. There may be a charge involved.

The above is based on our understanding, as at April 2008, of current taxation, legislation and HM Revenue & Customs practice, all of which is liable to change without notice. The impact of taxation (and any tax reliefs) depends on individual circumstances.