Income drawdown is an alternative to purchasing an annuity but it comes with risks. Our income drawdown calculator will be able to help you better understand the inherent risks and now includes a table of potential income payable to age 100. Results are also displayed graphically.
What are the risks?
First and foremost, a pension in drawdown remains invested. The value of fund can therefore rise and fall depending on the underlying investments.
If the invested fund grows well then income drawdown could prove to be a wise decision. On the flip side, if growth is lacking then the income taken can quickly reduce the value of the fund to the point that the income available is drastically reduced at the next ‘reference period’ and thereafter. A reference point runs for three years until age 75 and one year thereafter – the maximum income is recalculated at the start of each reference period.
Where the pension fund is invested is a matter of choice and only dictated by the range of funds available from the drawdown pension provider. For income drawdown to outperform a conventional annuity the fund in which you’re invested may need to return in excess of 6%pa – the actual amount will vary according to age, charges and annuity rates.
Maximum Income: March 26th 2013
Legislation looks set to raise the maximum income available from income drawdown products by 20%.
This appears to be good news particularly with annuity rates being so low. However, if it’s possible to take more income then it is also possible to deplete the fund more quickly and this will reduce the income available in the future. We have produced an income drawdown calculator that uses the higher income levels – 120% of GAD income drawdown calculator.
Both calculators make it possible to see the effects of income drawdown if less than the maximum income allowed is taken.
Before commencing an income drawdown plan you will need to discuss this with a financial adviser. Most drawdown pension providers will not allow a drawdown contract to be arranged without advice. Use this enquiry form to discuss your requirements with drawdown specialist.