Income Drawdown and Phased Retirement
Q When are these options suitable?
b) You think that annuity rates will improve in the future
c) You have a spouse much younger than you are and are concerned about the cost of buying a spouse's pension (the younger the spouse, the greater the cost of the pension and therefore the greater the reduction in the main pension).
d) You wish to vary the amount of pension income each year.
e) You are not averse to risk and believe you can make investment returns work for you to increase your pension.
f) You have other capital/ source of income and can afford to take a higher risk.
g) You have a lower life expectancy for you or your spouse.
Q What is Pension Income Drawdown?
A At retirement instead of buying an annuity you leave your fund invested and take withdrawals from it.
A It depends on whether you are taking Capped or Flexible Drawdown.
A Capped Drawdown allows you to take an amount between zero and a maximum figure equivalent to a single life annuity.
A Yes but remember it will be taxed as income at your highest rate in that year.
A Annuities from personal and company pensions and state pension benefits.
A It is invested in the investment funds of your choice.
A Yes you can but this must be done before drawdown starts.
A Yes. Your fund is subject to investment performance and therefore it can fall in value as well as rise. A fall could result in a lower income.
a) If under 60 your spouse can defer taking an income until age 60 when an annuity has to be bought.
b) You spouse can continue taking USP drawdown.
c) Your spouse may buy an annuity subject to it not exceeding the maximum pension which would have been payable to you.
d) He/she can take the remaining fund as a lump sum less tax at 55%. This tax liability also applies to a non spouse beneficiary.
A Yes in exactly the same way as an annuity would be taxed - as earned income.
A It is a pension fund divided into many portions or segments.
A Each year, sufficient segments are encashed to provide a tax free cash sum and pension.Together these two components are used to satisfy the income requirement.
As years progress smaller tax free cash sums are needed as the annuities cashed each year accumulate to provide a larger annuity income.
A Your dependents receive a combination of the remaining tax free cash and any dependents annuities for which you have made provision.
A Yes very much so, and a combination can often be more suitable than either of the two methods alone.
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