New rules that give private and workplace pensions holders far greater freedom in how and when they access the cash value of their pension have introduced income drawdown as a popular alternative to traditional annuities.
An annuity is a guaranteed income for the rest of the holder’s life, bought in exchange for the value of a pension pot. Before the new rules, the vast majority of pension holders would buy an annuity on retirement, its size depending upon the value of the pot.
The annuities provider reinvests the value of the pension pot and hopes to generate enough cash flow from the investments to at least meet the annuity paid to the holder. On the annuity holder’s death, the payments are no longer due and the financial company that had provided the income is then takes all revenues generated from the investments as its own clear profit.
Topics covered in this Guide
- Income Drawdown
- Flexi-Access Drawdown
- Combining Drawdown and Pension Contributions
- Tax on Drawdown Income
- Inheritance Rules
- Initiating an Income Drawdown Plan