![]() Tax implicationsĪlthough you can withdraw up to 25% of your pension fund tax-free, anything else you withdraw from your pension pot will be treated as income and as such subject to the marginal rate of income tax. There’s no limit to the amount of income you can withdraw - you can draw as much (or as little) as you like, even the entire fund if you want.Īnd unlike an annuity, in a drawdown arrangement the pension saver keeps their pension pot. As the bulk of your pension remains invested the fund is still able to benefit from any growth (or not!) in the value of its investments. Rather than exchanging your pension savings for an annuity (a fixed and regular income for life paid by the pension provider) the pension fund is left invested and you draw income directly from the fund. Pension savers who are currently in a capped drawdown can move out of that arrangement whenever they choose. Now, with the introduction of new 'income drawdown' rules, anyone with a DC pension and age 55 or over, can use income drawdown to provide the income they need in retirement. Since income drawdown was introduced some years ago, anyone of retirement age with a DC pension has been able to take income directly from their pension fund without needing to buy an annuity. They did so because they either didn’t qualify for income drawdown or were not willing to accept (or unable to afford) the associated investment risk. Traditionally, when the time came to retire, most people with defined contribution (DC) pensions (usually where the same amount is paid in each month), either used their whole pension fund to buy an annuity or used the remainder to do so after taking their entitlement to tax free cash (normally 25% of the fund). For more information call us today or complete our short enquiry form and we'll be pleased to help you further.) (Please note - Income Drawdown is a complex and constantly changing subject and the information provided here reflects the current situation.
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