Why choose Income Drawdown?

Unlike an annuity, with Income Drawdown your money remains invested and you simply take a pension income directly from it.

This is the most flexible way to take your pension benefits, although it may not be suitable if you want the security of income that an annuity offers.

This option might suit you if you want:

  1. To carry on paying in to your pension – if you’re under 77, you can still add to your pension pot and get tax relief
  2. Growth potential – as your pension pot stays actively invested in a tax efficient environment, there is potential for future growth
  3. A flexible pension income – you can take payments to suit you if you have a pension pot that’s large enough to sustain your withdrawals from it
  4. More control – you can buy an annuity at any time
  5. Flexible options on death – unlike some annuities, this pension can give flexible benefit options after your death

How much income will you get?

Income drawdown allows you to take a flexible income directly from your invested pot, within limits set by HM Revenue & Customs. Aside from these limits, the income you’ll get depends on a number of factors. The most important ones are:

    1. The amount of money you have available in your pot to take an income from
    2. How often you draw an income and the amount you take from your pot. The more you take, the less you will have for future years.
    3. How your investments perform. For example, a lower than expected performance can reduce the amount of income you can take in future.

Income Drawdown v Annuity

An annuity is a lifetime contract and cannot be changed once started. For example if annuity rates increase you cannot get a better deal. If you are close to the age 70 or more then annuity rates are likely to be favourable for most people. However a person in their mid 50’s or early 60’s may not benefit from a contract that cannot be changed for the rest of their lives.

However if you have a small pension pot and no other means to support yourself an annuity is likely to be most suitable.

Income drawdown offers younger clients in particular more options in retirement and the chance to see their money grow even after they have retired. As long as you understand the risk versus the reward and have a large enough pension plan (£50,000 typically) to absorb costs etc then these are a viable option.

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Flexible Drawdown

One of the main perceived disadvantages to pensions and annuities has been the lack of access available to accrued pension funds. However, recent changes in legislation

As long as certain criteria are met, there is the option of no upper limit to the accessible income have brought about exactly what the name suggests greater flexibility from your pension.

You need to have sustainable pension income, that is, guaranteed income, of £20,000 per annum both in the year of your withdrawal and for the rest of your life. You also need to have finished contributing to your pension scheme.

Once the above criteria are met, the remaining fund after all the tax free entitlement can be accessed as income which will be liable to your marginal rate of income tax.

As this option is relatively new, having been allowed since 2010, there are still very few pension companies who facilitate this. As with any retirement decisions, it is wise to take advice before making your final choices.

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Are You Eligible for an Enhanced Annuity?

You are approaching retirement, have a pension fund, and you have decided that following annuity advice and reviewing all the options available is the way forward.

You are also aware that you can take exercise your Open Market Option to find out who in the market will provide you with the best rate annuity, in other words which company will give you the highest income for your fund. But there is one further consideration.

In the United Kingdom one in three of us may be eligible for a higher income when we retire due to poor health or lifestyle. You may be eligible for an Enhanced Rate annuity, which may mean your pension fund could purchase a higher income in retirement.

The additional income is judged on your lifestyle. For instance, if you are a smoker or over weight you are more likely to suffer from all the health issues associated with that. Being blunt, the companies that supply annuities will take the view that you are less likely to live to a ripe old age in retirement, so they can afford to give you a better income from your pension fund, hence the term ‘Enhanced Rate annuity’.

Applying for an enhanced rate annuity involves the completion of one simple quote request form that all the companies who provide enhanced annuity rates accept. It’s important that you disclose all the relevant medical information, because it may affect your retirement income levels if you withhold lifestyle information and mistakes cannot be corrected later. It may also entail a medical report from your doctor.

Even if you are unsure about your eligibility for an enhanced rate annuity it may still be worth completing the form to find out. Remember this annuity will provide you with an income for the rest of your life so the decisions you make now are important.

Even if you are in good health but considering a joint income with your partner, their lifestyle is also a factor that could influence the rate you are offered.

Once a set of quotations are produced you should compare that with the annuity quote provided by your pension company then simply decide which option is best for you .

With enhanced rate annuity’s seeking independent advice is essential to ensure you get the best possible income available tailored to yourselves and your partner’s lifestyle in retirement. If you have sought advice and your adviser has not discussed enhanced rate annuities, you have not been told of all your options. Remember this is a specialist area and only a select number of annuity companies offer them. We are in times of severe austerity so making sure you get as much income from your pension fund could make a lot of difference to your retirement and what you are able to do during it.

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FSA releases consumer risks report

Consumers could be set to benefit from a new report analysing the main risk they face in the financial services sector over the next 12 to 18 months. The Retail Conduct Risk Outlook report, produced by the Financial Services Authority (FSA), says consumers could face the effects of a slower economy, lower interest rates and poor returns. According to the findings of the FSA, many people are attempting to tackle these obstacles by saving more, shopping around and paying off debt.

The result is that for many consumers, one of the major risks being faced is the danger of buying and being sold unsuitable products. These products can range from those that a too risky to those products they do not understand or those that fail to meet their individual circumstances. The report also looks at the wider external factors on the economy, the pressures facing certain firms and the overall impact on consumers.

The FSA hopes the findings will help firms to understand, reduce and avoid risks. Martin Wheatley, FSA managing director, said: “Consumers rely on financial firms and their products to provide them with vital services – literally the means to run their lives. They need to be able to trust that the products they buy work for them and that they are getting a fair deal.”

The FSA believes that early intervention is crucial in any instance of mis-selling.

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HMRC to target cyber criminals

HM Revenue and Customs (HMRC) has stepped up its campaign against cyber criminals with the launch of a new cyber crime team designed to tackle tax fraud. This new team has been launched in a bid to protect the exchequer from any attempted fraud from cyber criminals adopting sophisticated ways to target HMRC’s repayment systems.

Under the plans, the new cyber crime team will protect both HMRC and taxpayers from criminals while building on HMRC’s current cyber counter-fraud capabilities. The new initiative will make up a key element of HMRC’s new Cyber Crime and Security Strategy. High calibre analysts, technical experts and investigators have been recruited to the team to help protect HMRC and its customers from fraud.

The new team will provide HMRC with expert advice and analysis on how best to keep services secure, while aiding criminal investigators with their technical expertise. David Gauke, the exchequer secretary, said: “In the last year alone, customers reported over 200,000 bogus emails purporting to come from HMRC. HMRC is getting ahead of the curve – taking forward what it is already doing in a better way.”

The FSA does not regulate tax advice. Tax rules are subject to change.

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Mortgage lending on the rise, says CML

Mortgage lending levels are on the rise compared with numbers from last year, according to the latest figures from the Council for Mortgage Lenders (CML).

According to the new data released today (March 13th), 35,600 loans, worth a total of £5.3 billion, were taken out for house purchases in January.

This represented an increase on numbers recorded over the same period last year, with an increase of 22% by volume and 23% by value compared with 2011. These numbers were down on those recorded in December 2011 though, with a decline of 25% by volume and 24% by value.

Paul Smee, director general of the CML, remained unconcerned by the dip though, noting that the decline was part of a seasonal pattern in the mortgage market. “We traditionally see a substantial fall in lending figures at the start of the year, reflecting the lack of enthusiasm by buyers to move house during the post-Christmas months,” he said.

Instead, Mr Smee was wholly positive about the year-on-year rise in house purchase lending. “The year-on-year rise in house purchase lending suggests that lending levels are generally rising although we expect the trajectory to be bumpy rather than smooth this year.”

The value of your investments – and the income from them – can fluctuate and it is possible that you might not get back a significant amount of your investment. Past performance is not a guide to future performance and may not be repeated.

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Prisk reaffirms government ‘commitment’ to entrepreneurs

Business and enterprise minister Mark Prisk has reiterated the coalition government’s focus on providing support to entrepreneurs in the UK.

The comments come after the MP revealed that the UK had reached a significant milestone in mentoring support for entrepreneurs.

Mr Prisk revealed that the government had reached a key milestone in mentoring support at the first Global Entrepreneurship Congress in Liverpool.

The event is the first of its kind to be held in Europe and will see a week of activities, championing entrepreneurial spirit, take place in Liverpool.

Speaking at the event, the MP announced that the Get Mentoring initiative to recruit 15,000 volunteer business mentors had now passed the halfway mark with over 7,500 signed up.

Once these volunteers have been trained, this group will join 11,000 mentors already available through the mentorsme.co.uk portal, which was launched last year.

With 4,000 of the Get Mentoring volunteers already trained, that brings the total available number to 15,000.

Business and enterprise minister Mark Prisk said: “The government is committed to making the UK the best place in the world to start and grow a business.

“It’s encouraging that so many people are signing up to be business mentors and that we are continuing to get the support of influential entrepreneurs who are joining our campaign to boost business mentoring across the UK.”

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