Income drawdown is when you defer buying an annuity (pension) and draw an income, within the limits set by the Government Actuary’s Department, directly from the fund in the meantime. Up to 25% of the fund can be taken as a tax-free lump sum before your 75th birthday. You can continue to take income drawdown after age 75. This is known as Alternatively Secured Pension (ASP).

If you take a high level of income early in the term of the plan, this can reduce the income available for you and your dependants at a later date and there are some risks associated with drawdown such as investment growth, mortality cross-subsidies and levels of withdrawal.

You can take income drawdown in three ways:

Full Drawdown

Full Drawdown is when you take all of your tax-free lump sum and an income from your plan.

Phased Drawdown

With Phased Drawdown you can take some of your tax-free lump sum, your income or can buy an annuity from different parts of your plan at different times.

You can use Phased Drawdown to:

• ease back gradually on work by starting to replace earned income with pension income.
• provide more flexible death benefits, because parts of your plan that you haven’t used to buy pensions can be used to provide an income, a pension or a lump sum for your dependants.

Dripfeed Drawdown

With Dripfeed Drawdown you can take a specific amount of regular income, each instalment of which includes a portion of taxable income and a portion of tax-free lump sum.  Pension providers will apply a pension date to part of your plan at every payment date to provide the tax-free element. This will normally continue at each payment date until you buy an annuity or ask to pay your income in another way, or until you have applied a pension date to all your accounts.

 

You can use Dripfeed Drawdown to:

• maximise the death benefits payable to your dependants
• reduce the tax you pay on your income from the plan.

If you select Dripfeed Drawdown, it is possible that the tax-free lump sum element of your pension fund can be completely eroded by this method.  Dripfeed Drawdown is not available for income drawdown on or after age 75.  You will need to check with your provider if your pension has this option.

 

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