"Activate Income Drawdown on Your
Self Invested Personal Pension
And Give Yourself Regular Income
(and Lump Sum) Payments"

"Your Retirement Options Are Now Flexible - You Have Choices -
You DO NOT Have To Take An Annuity "

Introduction

• You can initiate 'Income Drawdown' from your Self Invested Personal Pension any time between the ages of 55 and 75.
  
  
• And, thanks to new pension rules, investors have the freedom to take as much as they want come retirement day.

The main route for taking this income has been dubbed "Income Drawdown."

• You can still convert your Pension Pot into an income for life i.e. an annuity, or take lump sums, called Uncrystallised Fund Pension Lump Sum (UFPLS). But thanks to new laws you are allowed to draw income directly from your SIPP.
  
  
• We see this as an attractive way to give yourself an income AND continue to let your Pension Pot grow with the remaining balance.  The best of both worlds you might say.

"What is Income Drawdown?"

When you enter 'Income Drawdown', you give notice to your pension provider that you wish to take an income from your Pension Pot, the remainder of which stays invested in shares or whatever other investments you may have chosen.

It's extremely flexible.  You can remain in Drawdown for as log as you want or you can use your pot to buy an annuity.

The main idea of this new rule is to provide you with an income (of your choice) AND to remain invested with what's left of your portfolio. If the investments within your pot increase in value you have the option to increase the income you draw.

If the investments within your pot decrease in value then you have the flexibility to decreae the income which you draw or stop it altogether. 

At any stage, you still have the option to buy an annuity.

If you were to die whilst in Income Drawdown you would have more flexibility than if you had bought an annuity.  What's left of your Pension Pot could provide either an income or a lump sum to your beneficiaries.

N.B.  It needs to be mentioned - after you have received your entitled 25% TAX FREE lump sum (see below) all income and lump sums taken from your pot are taxable at your standard rate.

"What Happens After Income Drawdown
Has Been Initiated?"

Naturally, you will receive the income, at the periods that you have requested.  This will continue until you inform your SIPP provider otherwise.

Next, you can continue with pension contributions, and, if you are still under the age of 75, you will also benefit from tax relief subject to your annual and lifetime contribution allowances.

Remember, there is still a pot of money invested in your SIPP.  It could be a sizeable sum. Keep on doing what you have always been doing - invest for growth.  Only you will know what you've got left in your SIPP account (and your SIPP provider), plan what you intend to do over the next 5, 10 15 ..... years.

"Annual and Lifetime Allowance"

The Annual Allowance of pension contributions is currently £40,000.  That roughly works out at around £3,300 per month.  We don't know many 'ordinary' people that can salt away as much as that.  £40K is very generous in our opinion.

The Lifetime Allowance is the total value of benefits that you take from your pension.

This is currently £1,030,000 and will no doubt change.

It is possible to take out protection against the Lifetime Allowance tax charge.  Contact your SIPP provider for more information on that.

"What Happens If You Die During
The Income Drawdown Period?"

A morbid subject for sure. But it has to be addressed.

One of our objections to annuities is exactly around this point. 

If you had opted for an annuity as a means of drawing an income from your SIIPP you effectively sell your SIPP to an insurance company and they quote you a regular income based on the value of your Pension Pot and your circumstances, i.e. health etc.

Firstly, annuities are tied to interest rates.  Currently, interest rates are pathetically low (currently 0.1%) and destined to remain so for the forseeable future.  Therefore, we think annuities are a bad, bad choice.

Secondly, should you be persuaded to purchase an annuity with your hard-earned, it is tied to you, or jointly with your spouse (at reduced rates), lifespan.

Should you live to a ripe old age - happy days.  You will receive your annuity payments right until your death. However, should you die prematurely, your annuity payments cease - not so happy days.

So let's assume that you have decided on the more flexible route of income Drawdown.

Conclusion

Income Drawdown is a welcome alternative to what was available in the "bad old days".  The days when you were forced to take an annuity.

Nowadays, with interest rates at an all-time low, and maybe set to stay there, annuities are just not a good fit for most people.

However, even with the advent of Income Drawdown, with the new pension freedoms savers have other options.  Go to 'Self Invested Pension Plans (SIPPs)' to read more.

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