It is essential that we all prepare adequately for the later years in life. Income drawdown is an interesting alternative to a typical annuity plan. The main concept is not so different than an annuity plan in so much that it has been designed specifically to ensure that when we retire we have access to funds that can maintain a quality of life.
Do you know what annuity is? This is a way in which a normal pension fund is converted into a fixed and regular source of money. An income drawdown differs in so much that the pension fund used is not utilized directly to provide an income; instead, the money is invested in a range of assets that can bring an altogether different level of income.
It is important to understand that if you were to choose the option of income drawdown then there is no guarantee how much money you would be able to access on a yearly basis. There is often a fixed minimum limit as well as a maximum level.
Be warned that the minimum may actually be zero pounds whereas the top level could be as much as one hundred and twenty percent of the original value of the pension fund. The actual figures are calculated from regulations set and imposed by the UKs Government Actuaries Department, otherwise known as the GAD. This proves that the system is not some sort of scam to swindle pensioners out of their life savings, but it does not mean that there would be no risk involved.
It must be noted that such schemes are only available for people until they reach their seventy-fifth birthday. After this age, the plan is terminated and any money held would be transferred to an alternative secured pension plan.
There are actually a number of benefits to be had from switching a typical annuity plan to an income drawdown scheme. For example, you would be able to purchase an annuity when you believe the rates to be favorable. Also, the holder of the policy can pass on the full savings and funds to a dependent upon death. This is simply not the case with most other retirement plans. Of course there is always catch, in this case, the dependent would be hit with a thirty-five per cent tax charge if choosing to take out the full amount accumulated.
It would be wise to do as much research as possible before deciding to take up an income drawdown scheme. By doing so you would understand exactly the risks and the benefits that can be had. Think carefully as the terms and conditions can vary dramatically between providers.
As long as you are fully aware of the ins and outs of the plans you check out you should be able to make an informed decision as to whether to stick with an annuity scheme or switch to a drawdown option. If you are unsure then seek professional guidance and advice from qualified people.