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Income Drawdown
Income Drawdown is an alternative to buying an annuity, where you leave your pension invested and draw an income from it.
Since April 2015 you don't have to use your pension pot to buy an annuity; there are alternative means of taking your retirement income. On reaching 55 you may now withdraw as much of the money as you wish to from the sum which you have saved into your pension.
Although the government has confirmed plans to increase the minimum pension age from 55 to 57 from 2028.
You can use your pension pot to provide you with a regular retirement income by reinvesting it in funds specifically designed and managed for this purpose, though the income you get will depend on the fund's performance. It isn't guaranteed income for life.
How Income Drawdown Works
You can choose to take up to 25% (a quarter) of your pension pot as a tax-free lump sum. You then move the rest into one or more funds that allow you to take an income (which is subject to tax) at times to suit you. Most people use it to take a regular income. The income you receive may be adjusted periodically depending on the performance of your investments.
Risks of Income Drawdown
It's important to carefully plan your annual drawdowns to ensure you don't spend it too soon. If you don't manage your income you could very easily run out of money from your pension pot. If your pension pot is the basis for your main income in retirement, think carefully about taking too much too soon. Unlike with an annuity, drawdown doesn't guarantee you an income for life.
The value of investments and the income from them may go down. You may not get back the original amount invested.