Taking a flexible income

Jim wants a flexible income

Age: 64

Occupation: Engineer

Pension savings: £192,500 in a personal pension plan

Plans for the future: Stopping work soon

Other income? £12,000 a year from a final salary pension – and my state pension from next year

What I'd like to do with my retirement savings:
I want flexibility to dip into my personal pension savings when I want to

Can Jim do it?

Yes. Jim can put his retirement savings into 'drawdown' (flexible income).

When he moves savings into drawdown, he could take a chunk, up to 25%, as tax-free cash (£48,125), the rest remains invested. The more tax-free cash Jim takes, the less he'll have in his drawdown pot.

Jim can take cash lump sums and regular income from his drawdown pot when he chooses. If he's employed, Jim will pay Income Tax on his wages through . Income from drawdown is also taxed through PAYE.

Because Jim's drawdown pot remains invested, he'll need to regularly review the income he's taking and the performance of the funds he's invested in. Jim could pay a financial adviser to manage this for him.

Putting his retirement savings into drawdown does involve investment risk – it's not a choice for those who want the security of a lifelong income.

Think drawdown is right for you?

By the way..

  • Jim's drawdown pot may run out sooner than he thought and his income could stop. He will need to manage his investments and the level of income he is taking to make sure it lasts for the rest of his life – he can pay a financial adviser to help him with this.
  • Jim needs to be aware and accept that investments can fall as well as rise. Poor investment performance will reduce his fund, so his income could be lower later in life and may not last as long as he wants it to. Jim needs to ask himself if he is prepared to or can afford to lose all or some of his savings if a wrong decision is made.
  • If Jim takes income or withdrawals from his drawdown pot, payments can still be paid into a pension plan but if these payments exceed £10,000 a year, Jim will be subject to a tax charge. If Jim just took the tax-free cash, and no further income or withdrawals, this tax charge would not apply.
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