Privani wanted flexibility to take her money a bit at a time, changing how much she took and when. After taking financial advice and confirming that this was the right thing to do, she transferred out of the Plan and took Drawdown.
Privani is used to making investment decisions and knows about the ongoing investment charges. She has a guaranteed income, from other sources to meet her basic needs.
Privani’s choice is just an example and does not suggest a particular option that you should choose yourself. Please look at all of the options available to you and consider seeking independent financial advice before making any decisions about your own benefits.
Summary of this option
Here is a list of things that this option provides or doesn’t provide. Have a look through and see if what this option offers might suit your personal circumstances. For example, is the reassurance of a regular income for the rest of your life a priority or would you rather withdraw money as and when you need to?
|Benefit||Available with this option?||Notes|
|Benefit: The reassurance of a regular income for life||Available with this option?No||Notes: Whilst you can withdraw regular amounts this income is not guaranteed to last you for the rest of your life and it’s your responsibility to make it last as long as you need it. You can, however, purchase an annuity at a later date with whatever is left.|
|Benefit: Pension increases to protect against inflation||Available with this option?Optional||Notes: You can increase the amount you withdraw to protect yourself against increases in the cost of living (inflation), by this we mean as the cost of things like fuel, bread, milk etc. go up, but it will run out quicker this way.|
|Benefit: A pension for my eligible dependant on my death||Available with this option?No||Notes: You can pass on your drawdown fund to your dependants when you die, but this is not the same as the regular income they could get if you choose the Plan pension or a joint-life annuity.|
|Benefit: Something easy to manage||Available with this option?No||Notes: Drawdown requires you to manage your investments and your money, to make sure it lasts as long as you need it to.|
|Benefit: Money to use now||Available with this option?Yes||Notes: You control how much you withdraw and when. You can currently take up to 25% (one quarter) of your transfer value as a tax-free cash lump sum when you retire or 25% of each withdrawal tax-free. See ‘When should you take tax-free cash with drawdown?’ below for more details.|
|Benefit: Leaving an inheritance||Available with this option?Yes||Notes: You can pass on your drawdown fund to your dependants when you die (typically tax-free if you die before 75).|
|Benefit: The flexibility to change my income when I like / need||Available with this option?Yes||Notes: You control how much you withdraw and when.|
|Benefit: The ability to invest my money myself||Available with this option?Yes||Notes:
Any money not yet withdrawn will need to be invested. Your chosen drawdown provider will have various investment options for you to choose from. You should consider the impact of any ongoing investment and advice fees on your fund and the money you can then withdraw.
Investments, and any income from them, can go down as well as up and you may be able to withdraw less than you started with.
|Benefit: Suitable if I expect to live a long time||Available with this option?Possibly||Notes: You control how much you withdraw and when, so this depends on how you manage your money, how your investments perform, how much you withdraw each year and how long you live.|
- You can currently take up to 25% of your transfer value or 25% of each withdrawal as a tax-free cash lump sum
- If you die before age 75, you can generally pass your savings to an eligible dependant tax-free.
- Withdrawals above your tax-free cash allowance will be taxed at your marginal rate of income tax for the year in which you make the withdrawal
- You won’t pay tax on investment returns within your Drawdown fund
- On death after 75, the savings remaining can be drawn down or paid as a lump sum, taxed at your eligible dependant’s marginal rate
When should you take tax-free cash with drawdown?
When you enter drawdown, you currently have the option to either take a quarter (25%) of your transfer value up front as a tax-free cash lump sum, or you can take a quarter (25%) of each withdrawal you make tax-free. Whether you choose one way or the other will depend on your personal circumstances and tax position, so it’s worth speaking to a financial adviser for advice.