Drawdown and Annuities
For advice on income drawdown and annuities, leave your details and get a free, no obligation telephone consultation with the highest rated Financial Advisor.
Income drawdown is an alternative to purchasing an annuity and allows you to keep your pension invested while taking a portion of the pension each year as income which is where the term income drawdown is derived.
Income drawdown is flexible enough to allow you to take different levels of income each year. You can choose to take no income at all or up to 100% of the limit set for your age by the Government Actuary’s Department (GAD). The rules regarding income drawdown are complex and you are strongly advised to seek financial advice before making your final decision.
Benefit of Income Drawdown over Annuities
You are able to switch and purchase an annuity at any time while in income drawdown whereas if you choose an annuity, that decision cannot be reversed.
If you die during income drawdown, your loved ones can inherit the remaining fund less 55% tax or be paid an annuity or draw income from the fund. Annuities cannot be passed on to your heirs meaning that if you die early into your annuity lifecycle, the pension pot you had saved up to purchase the annuity will not be inherited.
Downside of Income Drawdown over Annuities
Purchasing an annuity will guarantee you an income for the rest of your life. Opting for income drawdown means that you are risking the value of your pension fund falling depending on its performance. If the pension pot does go down, you may not be in a position to replenish the fund as you are in retirement.
As income drawdown is not guaranteed for life (unlike annuities), you only have income while there are funds in the pot. An empty pension pot will mean reduced income in later retirement.
In summary, income drawdown is not suitable for everyone and is usually most appropriate for those with a large pension pot.
Buying an annuity will provide you with a guaranteed regular income in exchange for the pension fund that you have built up over the years. Two-thirds of people still purchase their annuity from their existing pension provider. However, you are not obliged to do so and the Financial Services Authority (FSA) advise that you should shop around on the open market and compare the annuities on offer with that of your provider. It’s possible you could receive up to 40% more income by shopping around.
Buying a pension annuity is a very important one-off decision which cannot be reversed once you have committed so its pays to shop around for the best deal for you. Use our annuity rates calculator to get an indication of the income you could get based on the size of your pension fund.
An IFA specialising in advising on annuities can give you impartial advice on a range of issues including the different types of annuity you may consider:
- Conventional Annuities
- Value Protected Annuities
- Impaired and Enhanced Life Annuities
- Unit Linked Annuities
- Purchased Life Annuities
You can take the hassle out of comparing the thousands of annuities on offer as Financial Advisor Bureau can put you in touch with only the highest rated IFA in your area with proven expertise in annuity comparison to find the one that best suits you.
They have achieved the highest consumer and industry ratings for the integrity and quality of their service and will provide free, impartial and no obligation advice so you can make informed judgements about your annuity options.
All the IFAs recommended by us are authorised and regulated by the Financial Conduct Authority (FCA) which means that they are qualified to give unbiased, independent and professional advice. They will be the highest rated advisors in your area dealing with annuities advice and will give you a free telephone consultation and advice on the whole market. For instance, you may wish to obtain free advice about the following:
- What annuity rate can I expect with my pension fund?
- What should I consider before choosing drawdown or annuities?
- Which kind of annuity would be most appropriate for me given my circumstances?
- Should I stick with my existing pension provider to switch to another for my annuity?
- How do I compare the different annuity quotes I receive?
- What’s the best way to drawdown my pension?
An IFA can answer these and all your queries about annuities to help you make the right decision.