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If you’re getting near to retirement age you may be considering the best financial options for you to enjoy a comfortable lifestyle, by leveraging the money you already have invested in the most effective way. To this end, the term pension drawdown may have popped up on your radar. It’s not too hard to understand the concept of pension drawdown: when you reach retirement age you keep your ‘pot’ of savings invested in your fund, but you take some out to live on in your retirement, as ‘income’. What’s a little harder to get your head around, however, may be the many rules (including recent reforms) that govern a pension drawdown. While it’s an extremely complex topic (which is why it’s always best to enlist the services of a financial specialist to navigate it on your behalf), here are five fast questions and answers that will go a long way to making things clearer. Who can withdraw from their fund? Under current reforms, anyone over the age of 55 can withdraw ‘income’ from their fund, although under some circumstances you may be able to access it sooner – for example due to ill health or having a profession with a ‘protected’ retirement age under 55. Be aware that the earliest age you will be able to access your private pension is changing to age 57 in 2028. How often will I be able to take out money? A pension drawdown allows you to take money out as often as you like – according to the rules of your provider. However you need to bear in mind that it may incur a small administration charge every time so make sure you consider whether it’s worth it. Am I still allowed the tax-free lump sum my scheme promises? Yes. While different schemes have different rules when it comes to tax-free lump sums – so it’s important you read the fine print and understand the ramifications – you are permitted to take up to 25% of the value of your entire fund as a lump sum and pay no income tax. Do I have to pay tax on the money I drawdown though? Yes, you’ll pay a marginal rate of income tax, taking into consideration the established tax-free rules of your pension. Will I run out of money too soon in my retirement if I take a drawdown? No, as long as you manage it correctly and do not withdraw an at an unsustainable level, of course. However it’s certainly possible to take out too much, too often if you don’t keep track of things. It’s vital that you understand your own financial and lifestyle goals and stay within the parameters of those in terms of the timing of any withdrawals. Get Peace of Mind with an Expert There are many, many considerations you need to take on board in order to judge whether this is the right and sensible decision for you, in line with your own personal goals. Unless you’re a bona fide money and tax expert yourself, it’s always a wise proposition to enlist the services of a professional financial planner, who specialises in pension drawdowns and is up to date with the latest legislations and reforms surrounding this very important subject. The industry is in a continual state of flux, so making a mistake with your retirement money due to ignorance of new legislation could cost you dearly. Author Plate Claire Novakovic is the go-to expert for those who need advice on pension drawdown and other related issues. As a Chartered Financial Advisor, she is the inhouse pension expert for Accudo Investments. Offering comprehensive independent financial advice tailored to each individual’s needs, Accudo Investments provides effective portfolio management and tax strategies to meet the needs identified.
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