Drawdown
A flexible retirement income
What is drawdown?
Drawdown gives the flexibility to take an income from your retirement savings while leaving them invested.
You don't have to take an income immediately - you can also decide to use this option to access your tax-free lump sum and leave the rest of your savings invested.
If you have pension savings and want a flexible, hands on way of managing your money, drawdown could be the best option for you.
What are the options from my Zurich plan?
Zurich doesn’t offer drawdown so you’ll need to transfer your savings to another provider.
We strongly recommend seeking financial advice before choosing drawdown to ensure you choose the product best suited to your needs. If you are unable to get financial advice, we can put you in touch with a third party called HUB Financial Solutions who can offer you a product that may meet your needs on a non-advised basis.
How does it work?
This option allows you to take a taxable income, in the form of withdrawals as and when you need them. You can also decide to use this option to access your tax-free lump sum and leave the rest of your savings invested.
You also need to check what exit fees may be charged when you change plans.
When you access drawdown your pension savings will be invested in funds of your choice. These funds go up and down in value and poor investment performance will reduce the value of your drawdown pot.
Taking an income is entirely up to you and withdrawals can be made at any time. Please note that the length of time you can take an income for depends on the value of your drawdown pot, the amount you take as income, investment growth and charges. If your drawdown pot runs out before you die your income will stop.
What else do I need to think about?
Drawdown is known for its flexibility and gives you a number of options to consider. Unlike an annuity, some of these can be chosen after you've entered drawdown.
Similar to an annuity, you'll usually be able to take up to 25% of your pension savings as a tax-free lump sum.
This might work for you if you fancy rewarding yourself for all those years of work with something like a holiday or a new car, but remember that the more tax free money you take, the less there'll be for any income or withdrawals you make in the future.
As your pension savings have been invested in funds of your choice, it’s essential that they are reviewed regularly and that the amount of income or withdrawals you take are monitored closely. Please note any income or withdrawals you take will be paid net of income tax - just like income is paid from an employer.
You should only enter drawdown if you are prepared to take investment risk and have the time, skill and knowledge to regularly review your plan or are prepared to pay an Adviser to do this for you.
If in the future, you decided a guaranteed income would better suit your needs, you can use what's left of your drawdown pot to buy one.
You can choose to leave whatever is left in your drawdown pot to someone else when you die. This can be in the form of a lump sum or income and unlike an annuity, you don’t have to choose this option when entering drawdown.
Drawdown pots left to loved ones will usually be tax-free if you die before the age of 75. Death at 75 or above could mean the drawdown pot is taxable.
The income from drawdown is taxable so before you decide which retirement option to take, you'll need to consider your personal circumstances.
If you have taken any income or withdrawals from your drawdown pot, then you will be subject to the money purchase annual allowance (MPAA). If the MPAA applies and total contributions to all your money purchase pension plans in each tax year are more that the MPAA you will have to pay a tax charge. The MPAA is currently £4,000.
Pension Wise
Access a free, impartial government service to help you make sense of your options with Pension Wise.
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