PENSION DRAWDOWN
When the time comes to access your pension, there’s a laundry list of factors to consider:
- What’s the best way to withdraw my income?
- Which accounts shall I draw an income from?
- How can I make sure that I don’t run out of money?
- When should I take my tax-free lump sum?
- How much tax will I need to pay on my income?
At Tideway, our preferred solution, which we believe provides the best position to tackle all the above, is pension drawdown.
What is pension drawdown?
Pension drawdown is a method of accessing your retirement savings gradually, rather than taking it all as a lump sum.
After you retire, your money will remain invested for growth; you are then able to withdraw tax free cash and/or income as needed. This allows your remaining savings to stay invested in funds that aim to provide inflation-beating returns.
What are annuities?
Buying an annuity involves surrendering your entire pension pot in return for a fixed sum of income annually for the rest of your life. Historically, and with a lack of viable alternatives available, buying an annuity has been a popular solution for accessing an income in retirement.
Annuities remain an appropriate solution for some of our clients. However, with flexibility and control remaining a common objective, at Tideway we would generally recommend pension drawdown as the most effective method of turning your pension into flexible income in retirement.
Why use pension drawdown?
Flexible and tax efficient
Pension drawdown allows you to make changes to your income as and when necessary.
This flexibility allows for a more sophisticated approach to ensuring your income is as tax efficient as possible.
On it grows
Your pension stays invested, which means it has the potential to grow over time.
This can help facilitate the lifestyle you want to enjoy in your later years and help fund any unexpected costs that may arise – for example, care costs.
Passing it on
Although pensions will be included in your estate for IHT purposes from April 2027, there are still many effective ways of using your pension funds within your estate planning.
This can help ensure your money stays in the family, leaving a legacy behind.
Helping Mrs S draw a pension income
When Mrs S came to us in 2021, her husband had sadly passed away and left her a sizeable pension fund.
She enlisted our help to create a plan for how to draw an income from the pension which would sustain her for the rest of her life. Read on to learn how we achieved this.
How we approach
pension drawdown
Broadly, there are two key methods that we use for our clients’ income needs:
Traditional Pension Drawdown
This is suitable for those who wish to drawdown an income at a sustainable, lower rate (figures of around 4% are generally considered sustainable).
Dual Account Drawdown
Dual Account Drawdown is a strategic way of handling drawdown for those who wish to draw a higher income (for example, 5% and above). This approach is a more explicit method of shielding you from what is known as Sequencing Risk.
Speak to us about your retirement
We would love to talk through your retirement plans with you, no matter what stage you’re at.
To get started, we offer a free, no-obligation initial chat with a wealth manager. They will assess your current situation, ask you about your goals, and provide you with a recommended course of action.
Get in touch with us today to book in your meeting and get started on your retirement plan.