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This article explains the pros and cons of Income Drawdown and what this could mean for your retirement planning under the new pension freedom rules.
Income Drawdown is a way of providing your retirement income without sacrificing control over your investments:
Under the new pension freedom rules, all the limits on how much money you can withdraw from your pension have been removed. You can draw out your whole pension fund is one lump sum if you wish. This is not usually a good idea as you have to pay income tax on the withdrawal (excluding the 25% tax free lump sum). In order to calculate the Income Tax due, the withdrawal is added to your annual income which can mean you pay tax at the 40% (or even 45%) rate, even if you are usually a basic rate taxpayer.
…if your investments do not perform as expected your income could reduce or in extreme circumstances stop.
If you are considering drawing money from your pension it’s really important to speak to an adviser to ensure you do not face an unexpected tax bill and you have enough money to live on throughout your retirement. Many people underestimate their life expectancy, which means they risk running out of money in old age.
If you die with funds left in your Income Drawdown plan, the death benefits available to your loved ones will depend on whether you were 75 or over.
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