Capped Drawdown and Capped Income Drawdown
From April 2011 a new capped income drawdown will be available and it will allow annual withdrawals between £0 and 100 per cent of the basis amount, the basis amount is based on what a lifetime annuity would be for the fund size and age.
With the capped income drawdown this is a change from the current maximum which is 120 per cent of the basis amount for under 75s and 90 per cent if over 75.
Current rules also changing are the requirements to take an income of 55 per cent of the basis amount after age 75.
Under current drawdown rules the drawdown limit is reviewed every 5 years, this will change to every three years until age 75 and then annually.
Some Pros and Cons of Drawdown Pensions
|Flexibility about when and how much income can be taken (subject to limits set by HM Revenue & Customs)||There is an element of risk – annuity rates may fall and the pension fund could decrease, which could mean a significant decrease in future income|
|The commitment to buying an annuity can be delayed.||Our research from 2008 suggests only larger fund sizes (£300k+) would survive a prolonged fall in investment performance.|
|Annuity rates could improve, allowing time for pension funds to potentially grow.||It is generally agreed that total funds should be a minimum of £100k before a Drawdown Pension is considered|
|Any future annuity purchase can be tailored to reflect the circumstances at that time.||HM Revenue & Customs limits the amount of income drawn from a pension fund.|
|On death, the remaining fund can be returned subject to a tax (currently 55%), or used to buy an annuity, unsecured pension or a Drawdown Pension for a dependant.||Fees will usually be charged for administration and investment management and the costs associated with these arrangements can be high.|
|Be aware of the risks – annuity rates may fall and the value of pensions could go down, meaning a decrease in future income.|
Source: Just Retirement