Drawdown gives you the flexibility to choose when and how much income to take from your plan. Depending on your circumstances, including other sources of income and tax, some income options may be better suited than others. Below is a summary of the income options available in drawdown. Your My Pension Expert Independent Financial Adviser will help you understand the pros and cons for each and make their recommendation as part of your advice appointments and annual reviews.
Choosing Your Income
Using Investment Growth
You may hear this referred to as ‘taking the natural yield’, this is when you only draw an income for the amount your fund has grown. Using investment growth for your income removes the risk of your fund running out too early. However, it does mean that your income would be variable and dependent on growth.
Drawing from Fund Capital
This income option requires you to sell some of your investments (disinvest) and then draw funds from the capital. Using your fund’s capital as part of your income will allow you to take a higher income but will also reduce your overall fund quicker.
When choosing how much income to take from a drawdown plan, you must consider how long you need the fund to last to ensure you don’t run out of money too early (longevity risk).
Taking no Income
You may choose not to take any regular income, leaving the whole fund invested to maximise your potential investment growth. Drawdown’s flexibility allows you to draw money from the fund as required, such as a one-off withdrawal to fund home improvements, or switch on regular income payments at a later date.