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Income Drawdown

Income Drawdown is becoming an increasingly popular way for people to draw an income from their pension. It is usually seen as an alternative to an annuity. It allows total flexibility as to how and when the income is taken, (it can be varied and stopped on a monthly basis) and enables beneficiaries to access the pot on death. This is not the case with annuities, whereby the annuity provider usually keeps any remaining capital.

Income Drawdown offers a number of potential benefits, but is fundamentally a personal pension from which you syphon an income. You retain control of the pot and its investments, usually working with a qualified adviser.

Historically there have been strict limits on the amount of income which could be drawn from these plans. From April 2015, however, these limits will be removed and access will be unfettered. However, if the level of income being drawn is greater than the net investment returns then this is likely to lead to capital erosion. Careful management is therefore essential if the income is to remain sustainable.

It should be noted that, on death, any payments made as a lump sum are currently taxed at 55%. However, this rate is being reviewed and is expected to be reduced this Autumn.

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