A personal pension fund that accepts existing pension plans is called an income drawdown. This allows retired people to withdraw a regular income from their pension funds. The regular income will be limited though according to the revenue regulations. One is also able to apply for an increase in the regular income if the current amount is not enough to cover the needs.
This income drawdown plan can only be considered once a person has retired. A tax free cash amount is paid out to the retiree and the additional funds are invested. The retiree can then withdraw from the invested funds as needed. This plan is partially limited to people who fall in the age range of fifty five and seventy years old.
The aim of such a plan is to continue investing the retirement fund and also obtain a regular income without the commitment to a specific annuity. By the time a person reaches the age of seventy five years, he or she needs to consult an advisor who will specify the options that are available for them to invest in the money that is left. This may be used as death benefits too.
It is most suitable for people who are not sure of their circumstances as the years will pass. This allows them to vary their income appropriately. It also allows people to benefit from potential growth in the market of investments. Lastly, for those who want to maximize death benefits that will be paid out to the family members, these plans offer the best choices.
There is a downside to this form of investment though. There is a great degree of risk involved. The income can never be guaranteed as it will always depend on the investment returns and future investment rates. As one withdraws, the remaining fund decreases. That means in a market where there is no growth, the remaining balance will be drawn out quicker than what it can grow.
Interest rates on annuities vary all the time and there is no guarantee in growth or in the unfortunate event of it decreasing. These rates are set with the knowledge that some people may not live until their expected age and some people may live beyond their life expectancy. This process is better known as mortality cross subsidy.
Advisors say that people should keep their withdrawals within the natural yields on their investments. If this is done, the funds are well capable of recovering in the event of low market rates.
Author Resource:-
Learn more about income drawdown now in our complete guide to all you need to know about drawdown UK on http://www.incomedrawdown.org.uk
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