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The flexibility to withdraw your pension as and when you need it

Pension freedomswere introduced by the Government in April 2015. Traditionally, people would buy an annuity with their pension savings and the annuity would pay a guaranteed income for the rest of their life. The new rules mean that you now do not have to do this – you can access all of your pension savings from the age of 55 and do whatever you like with them.

Flexi access drawdown gives you the flexibility to withdraw your pension when you need; it also allows you to invest your pension, allowing your money to grow.

Flexi-access drawdown suits people who are prepared to take some investment risk in return for a potentially higher income, or people who want the flexibility to vary their income or dip into their savings from time to time.

With flexi access drawdown you will be able to make further pension contributions, however, if you take any income or withdraw a lump sum in addition to the tax free lump sum, you will have a reduced annual allowance of £4,000 for future contributions to defined contribution plans. This is known as the Money Purchase Annual Allowance and where you remain a member of a defined benefit occupational pension scheme, you will also benefit from the standard annual allowance for these contributions.

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You should think about reviewing your income every year as well as the decision on whether it might be appropriate to purchase an annuity at that point.

If you die with funds remaining in a drawdown plan your beneficiaries will have the option of continuing to take Drawdown Pension, buying an annuity or taking the remaining fund as a lump sum. If you die aged under 75, drawdown income, annuity income and lump sum payments will be tax free and if you die on or after age 75 the income payments  or lumps sums are taxed on the recipients at their marginal rate(s).

Key Areas To Consider

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Investment & Risk

Flexi-access drawdown allows you to continue to invest your pension pot tax-free. With careful planning, your pension can continue to grow throughout your retirement. Flexi access drawdown also gives you access to a broader range of investment opportunities.

Investing in relatively safe areas such as cash and gilts is unlikely to enable a higher lifetime income to be achieved than with a secured pension, therefore, investing in the type of assets that might achieve the extra returns necessary will involve risk. The shorter the term to the intended date of purchasing a secured pension, the greater the risk.

The value of your pension fund may go down as well as up and investment returns may be less than those shown in the illustrations.

Taking withdrawals may erode the capital value of the fund, especially if investment returns are poor and a high level of income is being taken. This could result in a lower income if/ when an annuity is eventually purchased.

If investment returns do not at least match the critical yield (in simple terms, the value of growth required to provide an equivalent income at the age you intend to purchase an annuity) your eventual income is likely to be less than that which could have been available via the annuity route.

 

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Other Potential Risks

Annuity rates may be at a lower level if/ when annuity purchase takes place and there is no guarantee that your income will be as high as that offered under the other options referred to earlier.

There is no guarantee that annuity rates will improve in the future. They could be lower if/ when you decide to purchase an annuity than they are currently. Your pension may be lower than if you bought a lifetime annuity now.

High levels of drawdown pension may not be sustainable in the longer term.

If you intend to invest some or all of your pension fund, there may be charges involved with the new investment.

If you withdraw large amounts of capital from your drawdown fund, these may impact on any means-tested benefits you are in receipt of.

The benefits of bespoke financial advice

Independent financial advice

  • Pension Planning

    A financial adviser will help you to look at your overall goals and decide on a realistic, achievable plan. An adviser will make you think in detail about how you would like to spend your retirement and how your pension can provide it. Our Chartered team of experts provide you with a bespoke, accurate analysis of your retirement position to help you decide the best plan for you.

  • Regular Reviews

    As you get further into retirement, your needs are likely to change. A financial planner will keep a close eye on your investment, making sure you’re always getting the most out of your money. Yearly reviews can help you adapt and make changes to your retirement plan. A financial planner can also help to keep you on track during retirement making sure that you do not run out of money.

  • Tax

    Managing your tax during retirement can be complex and things like withdrawing money are not always as simple as they seem. A small oversight could end up costing you cost you hundreds of thousands in tax which could be avoided. An adviser can help you manage your tax during retirement and make sure that your finances are as tax efficient as possible.

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  • Knowledge and Experience

    There are seemingly endless pension solutions available, each with different rules and regulations. An adviser can help to narrow down your available options and provide you with a range of plans that are best suited to you. An adviser can also help you to understand investments opportunities along with the potential risks.

  • Chartered Standard Service

    At Imperial Chartered, we strive to give the best possible advice to all of our customers. That is why we aim for all of our advisers to become chartered. Chartered Status is the profession's gold standard for financial planners. Royal Charters are granted by the sovereign on the advice of the Privy Council and have a history dating back to the 13th century. This confirms that every Chartered Financial Planner has completed a suite of professional qualifications equivalent to a Bachelors' degree.

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