When it comes to taking an income from your pension savings, pension drawdown is considered one of the most flexible and tax-efficient ways to access them. And with the recent pension freedoms now in place, you can now take even greater control.

And the great news is that Drawdown lets you take an income or a series of withdrawals from your pension savings now, whilst still providing you with flexibility should you wish to choose a different option later in life

Your pension funds are reinvested into funds designed to provide you with a regular retirement income. This income may vary depending on the fund’s performance and it isn’t guaranteed for life

You can normally choose to take up to 25% (a quarter) of your pension pot as a tax-free lump sum. Though some older policies might allow you to take more in tax-free cash.

You then move the rest into one or more funds that allow you to take a taxable income at times to suit you. Increasingly, many people are using it to take a regular income. You choose funds to invest in that match your income objectives and attitude to risk and set the income you want

The income you receive might be adjusted periodically depending on the performance of your investments. Once you’ve taken your tax-free lump sum you can start taking the income right away or wait until a later date. You can also move your pension pot gradually into income drawdown. You can take up to a quarter of each amount you move from your pot tax-free and place the rest into a drawdown facility

To help provide more certainty, you can at any time use all or part of the funds in your drawdown facility to buy an annuity or other type of retirement income product that might offer guarantees about growth and/or income. What’s available in the market will vary at any given time

There are numerous considerations to think about when considering a drawdown facility:-

• You need to carefully plan how much income you can afford to take under flexi-access drawdown otherwise there’s a risk you’ll run out of money.
  • This could happen if:
    • You live longer than you’ve planned for
    • You take out too much in the early years
    • Your investments don’t perform as well as you expect, and you don’t adjust the amount you take accordingly.
  • If you choose flexi-access drawdown, it’s important to regularly review your investments.
  • Unless you’re an experienced investor, you should seek advice from a regulated financial adviser to help with this.
  • Not all pension schemes or providers offer flexi-access drawdown.
  • Even if yours does, it’s important to compare what else is on the market as charges, the choice of funds and flexibility might vary from one provider to another.
  • Comparing products yourself will be difficult but a financial adviser can do this for you. It’s the adviser’s job to recommend the product that is most suited to your needs and circumstances.

Any money you take from your pension pot using a drawdown facility will be added to your income for the year and taxed in the normal way. Large withdrawals could push you into a higher tax band so bear this in mind when deciding how much to take and when

The taxation of pension contributions and pension income is very complicated and you may well liable to different allowances, however the government’s Money Advice Service has further guidance and our Pension Specialists will be able to provide with detailed bespoke advice

A drawdown facility is a complex product and you should seek advice from our regulated adviser to ensure that it is suitable for you. Our advisers can review your circumstances and provide you with all of the information and advice to ensure that you come to the correct solution.

To discuss all your options in more detail please call one of our Pension Specialists at one of our regional offices who can recommend which options from the open market that are best for you.