Income Drawdown (also known as Unsecured Pension or USP) was first introduced in 1995 and was radically overhauled first in 2006, again in 2011 and most recently in 2015. Income drawdown means drawing an income directly from an invested pension fund.
It is beyond the scope of this short article to provide all of the technical information relating to income drawdown but, suffice it to say, that there is no longer any limit on the amount of annual income that may be withdrawn from a personal pension plan using income drawdown.
Whilst this level of freedom is welcome in terms of the flexibility it offers to savers, it does bring with it a level of investment responsibility that many investors have never had to face. How much income should be withdrawn each year? How long will it last? How should the underlying investments be structured? What happens if investment returns are poor? Who will monitor progress and recommend change?
At HDA we have developed an investment process which lends itself perfectly to the income drawdown market. It focusses on capital preservation, seeks to avoid volatility and yet still aims to capture a healthy level of market growth.
We have also developed bespoke systems which allow our customers to monitor their income drawdown levels and forecast future income based on the actual returns being achieved.
Income drawdown must always be looked at in relation to other sources of income and capital. Pension funds will usually be exempt from Inheritance Tax which means it may be prudent to exhaust other long-term savings before taking money from pensions.
For more information and personal advice please get in touch.