Drawdown Your Pension

 
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Drawing Down Your Pension Fund

As the owner of a personal pension, you now have many more options on how you use your pension fund to meet your needs and objectives.

We do feel it is important that you take a long term view of this money. It might be fine for Lib Dem Pensions Minister Steve Webb to say the Government don’t mind if you blow it all on a Lamborghini, but not having enough money to feed yourself properly or keep your home warm when you are an elderly pensioner are serious issues you should consider.

Traditionally whatever was left in your pension fund after the tax free cash lump sum was locked up in some way and your money was slowly returned to you in the form of an income. Customers did, and still do have, a number of products open to them to provide a guaranteed income for life, but from April 2015 they will also have the option of taking as much or as little from their pension fund as they wish. While in theory this means you could take all of your fund in one lump sum, we believe many customers won’t do this, not least because it will push them into higher tax rates.

While we will discuss all your options below, we believe that most customers will adopt the following strategy with their pension.

After taking their 25% Tax Free Lump Sum they will place the remaining 75% into a income drawdown fund. This fund will allow them to take money from it, but it will also remain invested and so has the potential to grow. Remember any money you take from the remaining 75% sitting in the drawdown fund will be taxed as earned income.

We believe that many customers will try to take a small regular income, not dissimilar to the current income limits that exist within drawdown. They would hope that the income they take is replaced (or partly replaced) by growth they achieve on the fund. While growth cannot be guaranteed we do have customers on our books who have for several years taken an income they are happy with from their fund and not only replaced it, but also achieved some growth.

The customer will always have access to the fund, so if an emergency occurs or they need to take a single lump sum they can still do this.

When they die any money that is still in the fund will pass to their spouse, partner or estate. The treatment of the fund will vary depending on who receives the death benefit. See Income Drawdown Pension Death Benefits.


 

You can use the taxable remaining 75% of your pension fund in the following ways :

Tax Free Element  
You can retain ownership of the fund, take no income whatsoever and try to grow the fund
further Tax Free Lump Sums  
You can retain ownership of the fund and take a steady regular income, and try to grow the fund to replace the income taken
Managing your fund  
You could take it all as a single lump sum
Drawing an income  
You could take it as a series of smaller lump sums over a number of tax years to reduce your tax liability on the fund
guaranteed growth  
You could use all or part of the fund to buy a temporary annuity
series of Lump Sums  
You could use the fund (or part of it) at any time to buy a traditional and / or enhanced annuity
 
 
You would be able to switch between the first 5 options above whenever you wanted (as long as there was still money in the fund). An annuity should not be discounted or overlooked and could be the best option for you, but you should remember that once you have purchased a traditional annuity it is for life and cannot be reversed
 
We hope you find our Pension Lump Sum Calculator useful. We constantly aim to improve the services we offer customers. If you have any feedback please don't hesitate to contact us. Call 020 33 55 4827 Now !!
 
 
Please Note : The new Pension Freedoms place a great deal of responsibility on the customer to make the right long term decision about their pension fund and how it is used. While Government Ministers say they "trust" people to make the right decisions, they will not have to deal with the financial consequences of a customer making the wrong decision. Your pension fund was intended to provide you with a long term income in retirement, if you take it all as one lump sum you may find yourself with little or no income during the later years of your life. This website does not give personal financial advice, you should think very carefully before making an irreversible decision. If you are in any doubt please seek independent financial advice or speak to the Governments free Pension Wise guidance service.
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Platinum Financial Consulting
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Telephone : 020 33 55 4827           Fax : 0871 277 1422           Email : info@platinumifa.co.uk

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Pension Drawdown Specialists