You may decide that leaving your pension fund (or some of it) for the future is exactly what you want. For example, you may have an alternative source of income, or rather than giving up work, you may slowly reduce the hours you work.

In our experience most people will take their tax free cash, and therefore this section will only focus on the options around managing your monthly pension income.

The first thing to remember is that if you are looking to take a smaller income which will increase over time, then an index linked Pension Annuity may suit you. The pension will start at a lower level and will increase each year with inflation.

If you are looking for a more sophisticated approach, then using a Drawdown contract could be the answer.

Unlike an annuity where you exchange all of your pension fund for a monthly income, the Drawdown contract will allow you to take an income directly from the drawdown pension fund. The rest of the fund remains invested and hopefully, with prudent fund management, it will continue to grow.

The government sets limits on the minimum and maximum amounts you can take from your drawdown fund, depending on your age. The limits are set by the Government Actuary’s Department (GAD) and indicate what percentage of your pension fund can be taken as income, based on your age. Don’t worry, your Drawdown provider will calculate all this for you, although the tables are available to download if you are interested.

The amount you can take is specified as a percentage of Government Actuary’s Department or GAD. Once set, you have a choice about how much of GAD you want to take within a specified range. The range goes from 0% GAD to 120% GAD.

This means that if the GAD table indicated that, based on your age and the size of your Drawdown pension fund, you can take £1,000 income per month, then you can select anywhere between £0 per month (0% GAD) or £1,200 per month (120% GAD).

If your fund allowed for £1,000 per month to be paid, but you only needed £400 per month, we would set your initial income level at 40% GAD. You can alter this amount each year.

You cannot add any untaken income in one year onto the income of another year. For example, if you could take an income £900 per month but only chose to take £400, you could not add the £500 per month onto the income you took in the next year, i.e. If 120% of GAD in the following year was £1,000 per month, you couldn’t take that plus the £500 that you didn’t take in the previous year.

For some people, particularly those with large pension funds, they do not like the idea of a conventional annuity where the entire fund is given to the annuity provider, because under certain circumstances, should you die, you run the risk of the remaining fund being lost to your estate.

The Drawdown option keeps the asset within your estate and within your control at least until the age of 75. If the fund is still in place at the time that you die, the fund value will pass to your estate. Some people find this an attractive option.

However at the age of 75 you will have no option and you must buy a pension annuity.

We do all the work for you in contacting all the providers, obtaining quotes and then ensuring all those quotes are on a like for like basis. Once we have done that we will present our findings to you in an easy to understand document.

Our aim is always to leave you in control while making the process for you as simple as possible.

We are always on hand at the end of the phone to update you on progress and answer any questions you may have.

We will of course look at your current pension arrangements to understand if you have any special terms and conditions attached to it. If you do have such conditions you can still switch providers if necessary, but at least you will have made a decision based on all the relevant facts.

Please feel free to call us on 0845 83 87 811 to discuss any aspect of your retirement planning.

You can contact us in a number of ways using the various forms on this website, or just call us on 0845 83 87 811.

If we end up using a standard annuity to achieve your goals, then there are no major risks as everything is guaranteed from outset.

A Drawdown solution may be a much better fit for your needs, but there are some risks as well as some clear benefits. Please see below for more information.

By keeping your pension invested, you have the opportunity to manage your investment options until you want to purchase an annuity. A good investment strategy could replace the amounts withdrawn from the fund.

At any point you have a number of options, including full pension annuity or taking an increased or decreased income from the Drawdown fund.

Even if you don’t want to take full GAD as an income, you could consider taking full GAD and using any surplus monthly income to put into another personal pension. The advantage of this is that a personal pension is more tax efficent if you should die while it is still in place and you have the potential to take another Tax Free Cash lump sum from it.

If you die while the drawdown contract is in place, the fund will form part of your estate and will pass to your family. With an Annuity, the fund is lost. This may be mitigated to a degree if an annuity with a guaranteed pension or partner’s pension is selected.

You can transfer the fund to a standard pension annuity at any point, but no later than age 75.

Risks

By taking a monthly pension income directly from the pension fund, you could seriously erode the value of the fund. You could even reach the point where the pension fund is completely exhausted. At this point, any monthly income taken will stop.

By moving away from your current pension provider, you could run the risk of losing some valuable benefits, such as guaranteed annuity rates.

Drawdown can be an excellent solution for many people, and we have many clients on our books who have used it to make a major impact on their lives.