• Whilst pensions are contributed towards and saved up for retirement, you can dip into your pension pot prior to this, should you need immediate income. This was done previously through a process called income drawdown, although can now be done under pension freedoms rules.
    Taking money out of a pension prior to retirement is not available to everyone; otherwise very few people would have any kind of half-decent pension when they did retire! Instead, it is only available to those aged 55-75.

Income Drawdown & pension Withdrawls

With income drawdown, up to 25% of a pension can be withdrawn as a tax-free cash lump sum, available to use immediately. The remaining pension goes into what is called drawdown and continues as before. With a pension withdrawal, any amount can be taken out of the pension, but depending on your earnings, some if not all of it could be taxable.

The amount taken out of the pension is obviously no longer part of it; future valuations will reflect this. Once a drawdown takes place, it cannot be applied for again – the 25% tax-free cash only counts once. All other withdrawals thereafter are taxable.

The remaining pension is still invested and will continue on until retirement. You can contribute towards it and switch funds, as before. It must be well looked after though, since 25% or more of it has gone, which leaves an exposure in future retirement planning.

Income drawdown is a specialist area of financial planning which only certain people can advise upon and it requires extra FCA permissions. MAP has such permissions and our pensions specialist would be happy to assist and advise you in the matter.

The FCA believe only larger pensions – £100,000 or more – should use drawdown. Otherwise the policyholder is near gambling with their retirement income, which is not good. If you are considering income drawdown, contact MAP today and arrange an appointment