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INDEPENDENT FINANCIAL ADVICE CENTRE
You should remember that past performance is not necessarily a guide to the future. Market and currency movements may cause the value of units, and the value derived from them, to fall as well as rise and you may get back less than you invested when you decide to sell your units. The tax treatment of investments and pensions is not guaranteed and may change in the future.
Your home is at risk if you do not keep up the payments on a mortgage
DRAWDOWN AND RISK (THE BIG BUT)
The most important thing to realise about Drawdown is that there are no guarantees.
Having taken any PCLS (tax free cash) that you want from your pension fund, the remaining fund is invested. From that remaining fund, you Drawdown (take out) some money between nothing and a maximum amount every year as “income”. Whatever you Drawdown is subject to income tax at your marginal rate.
You can have the “income” monthly or whenever you wish, yearly, quarterly etc.
But if you take out more each year than the fund grows, your Drawdown funds will be reducing in value, which will reduce what you can draw from the fund, giving you lower income in future.
You must be prepared therefore to take a “RISK” that you will be worse off in future by having a Drawdown annuity, if you are risk averse do not read any further Drawdown Annuities are simply not for you.
Your Drawdown fund must be invested in commercial property or stockmarkets, in the UK and/or internationally and as you should appreciate, the values of property and shares will go up and down in value, sometimes quite fast.
However you would not have the pension fund you have today unless it was invested in such markets and there are ways to minimise risk by investing in a well spread and balanced range of investments, preferably with a range of different Institutions.
In view of the uncertainties of Drawdown annuities, you really should have some other secure income, or sources of cash, to fall back on, so that through bad times you do not have to deplete your Drawdown funds in order to live.
Sometimes examples explain more than cold facts and at the end of this item are several case studies, which show the versatility of Drawdown annuities.
Rather than repeat chapter and verse a very good way to look at the Pros and cons of Drawdown is to study the Prudential’s excellent Key Features document on their plan. Click here to view their page and download the document.
ADVICE
Even with our new “simplified” rules these are complex plans and quite frankly if you enter into a Drawdown pension arrangement without the advice of a knowledgeable IFA you are asking for trouble. There is so much that can go wrong and so many alternatives to consider before reaching a final decision on how to proceed.
The most important thing to realise about Drawdown is that there are no guarantees.
Having taken any PCLS (tax free cash) that you want from your pension fund, the remaining fund is invested. From that remaining fund, you Drawdown (take out) some money between nothing and a maximum amount every year as “income”. Whatever you Drawdown is subject to income tax at your marginal rate.
You can have the “income” monthly or whenever you wish, yearly, quarterly etc.
But if you take out more each year than the fund grows, your Drawdown funds will be reducing in value, which will reduce what you can draw from the fund, giving you lower income in future.
You must be prepared therefore to take a “RISK” that you will be worse off in future by having a Drawdown annuity, if you are risk averse do not read any further Drawdown Annuities are simply not for you.
Your Drawdown fund must be invested in commercial property or stockmarkets, in the UK and/or internationally and as you should appreciate, the values of property and shares will go up and down in value, sometimes quite fast.
However you would not have the pension fund you have today unless it was invested in such markets and there are ways to minimise risk by investing in a well spread and balanced range of investments, preferably with a range of different Institutions.
In view of the uncertainties of Drawdown annuities, you really should have some other secure income, or sources of cash, to fall back on, so that through bad times you do not have to deplete your Drawdown funds in order to live.
Sometimes examples explain more than cold facts and at the end of this item are several case studies, which show the versatility of Drawdown annuities.
Rather than repeat chapter and verse a very good way to look at the Pros and cons of Drawdown is to study the Prudential’s excellent Key Features document on their plan. Click here to view their page and download the document.
ADVICE
Even with our new “simplified” rules these are complex plans and quite frankly if you enter into a Drawdown pension arrangement without the advice of a knowledgeable IFA you are asking for trouble. There is so much that can go wrong and so many alternatives to consider before reaching a final decision on how to proceed.
DRAWDOWN ANNUITIES
