Rules

The Rules

On transferring to a Pension Drawdown (Capped or Flexible) plan, you can immediately take a tax-free lump sum of 25% of the fund value and then take an income from the invested fund up to a limit prescribed by the Inland Revenue.

In some instances you may be able to obtain more than 25% tax-free cash from some occupational pension schemes depending on your length of service and salary. There is no limit to this entitlement and it is possible that you may be entitled to the whole of your fund value as tax-free cash.

It is not compulsory to take any tax-free cash and you can take less than 25% if you wish. The tax-free can be taken over time using a Phased Drawdown plan.

Unlike an Annuity (a Secured Pension) you do not have to take any income. The maximum annual income that you can take is set by the Government Actuaries Department (GAD). You can, therefore, take any level of income between zero and the maximum on a yearly basis. You can vary this income at any time, meaning that one year you could take nothing at all and the next the maximum.

Every three years this maximum level has to be reviewed and can increase or decrease depending on a combination of the fund value, your age and the GAD rate at that time.

Investment of your funds

The pension fund that remains after taking tax-free cash is invested in any investment fund that is offered by the provider of the plan. These funds are likely to cover all investment markets and will include both funds managed by the provider itself and also external funds such as unit trusts. These funds will cover all investment classes, i.e. UK equities, both growth and income, overseas equities, commercial property, fixed interest, corporate bonds and gilts. The funds can be changed (switched) between any of the funds that are available and with many providers at no cost.

Therefore the selection and managing of your investment funds within the Drawdown plan is just as important as selecting the right plan and provider at the outset.

Before investment funds are recommended your "Attitude to Risk" is ascertained, which would determine whether you were a Cautious or Adventurous investor, or anywhere in between. Any recommendation that we make would be in accordance with this.