Drawdown

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.

Although we don't specify a minimum, we suggest that a pension plan should be worth at least £50,000 (after taking your tax free lump sum), when considering drawdown. Other providers may suggest different minimum amounts for accessing drawdown.

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How does it work?

Before you do anything, you'll need to check to see if your current pension plan allows drawdown as most of the older ones don't. You also need to check what exit fees may be charged if you need to 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. If your plan doesn't allow drawdown then you would need to transfer to another plan. This can only be done though a financial adviser if you want to stay with Zurich.

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.


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Good to know

You don't have to fully retire to start claiming your pension savings. In fact, more and more people are choosing to take their pension savings gradually while they scale down their work hours.

So, from the age of 55, there is an option to access your pension savings and ease into retirement gently, but don't forget you need to make sure that you have enough to last for the whole of your retirement. You can retire earlier than age 55 if you are in ill health or have a protected retirement age. This may be relevant to you if you were employed in certain (special or hazardous) occupations or were a member of an occupational pension scheme which gives you the right to take pension benefits earlier. Please refer to your policy/scheme documentation or contact us if you are unsure.


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.

Financial advice

First off, we strongly recommend seeking financial advice before choosing drawdown. Unless you’re a confident investor, getting the most out of drawdown can be a risky process. You can only access drawdown through a Zurich plan if you receive financial advice.

How flexible is your plan?

While some pension plans don’t feature the option at all, others give you the flexibility of moving all or part of your pension savings into drawdown. If this sounds like the right option for you, you need to find a plan that offers it and decide how much of your pension savings you want to invest.

Be aware that changing plans may trigger exit penalties. These can differ from plan to plan but are usually limited to 1% of the plan value from the age of 55.

You choose how much income, if any, you want to take and reduce or increase it to suit your needs - however, don't forget you need to make sure your drawdown pot lasts for your whole retirement so you need to manage your income carefully.

Take a tax-free lump sum

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.

Manage your income

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.

Buy an annuity

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.

Leave something behind

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.

Tax implication

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.

Made up your mind?

If you think drawdown is the option for you, you should speak to a financial adviser. If you don't have a financial adviser, you can find one by following the links below. If you need information about your plan you can contact us.


Need advice?

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Access a free, impartial government service to help you make sense of your options with Pension Wise

Pension Wise
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If you don't currently have a financial adviser, you can find one near you at unbiased.co.uk

unbiased.co.uk
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Or you can read reviews of financial advisers at vouchedfor.co.uk

vouchedfor.co.uk

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