Pros and Cons of Pension Drawdown
If you are considering Pension Drawdown as a viable option for your retirement, you’ll need to know the advantages and disadvantages before making your decision…
Pension Drawdown – Advantages
- Access to tax-free cash immediately
- Flexibility to vary your income according to your requirements
- Control the level of income tax you pay
- Control of your investment
- Funds benefit from investment growth in a tax-efficient environment
- Choice not to purchase an annuity
- Option to take unlimited amounts
- Choice of death benefits for dependants
Pension Drawdown – Disadvantages
- Future investment returns are not guaranteed
- High withdrawals of income may not be sustainable
- The higher the level of income withdrawal chosen the less that may be available to provide for dependants
- Increased flexibility brings increased administration costs
- Level of income could change due to investment/ fund performance
News
Why take Drawdown advice?
The Financial Conduct Authority (FCA) produced a report called the Retirement Outcomes Review (MS16/1.3) in June 2018 which commented on how benefits were being taken since the Pension Freedom and Choice legislation was introduced in April 2015.
Final Salary Pension Schemes
This will effect you if you have a deferred Final Salary Pension plan or Defined Benefit Pension. If you are a deferred member, i.e., you have left your employer but the pension is not due for payment until your normal retirement date (65?), your right to a Cash Equivalent Transfer Value (CETV) may be affected.
Budget 2014 – The key changes for annuities
Using a Fixed Term Annuity or Drawdown will allow you to access 25% of your fund as a tax free lump sum and leaves the remainder of your benefits to be accessed under the further changes proposed from 2015. Therefore, in the interim, this leaves the door open for your options.