Drawdown Pension – Transferring the whole value of your pension fund into a Drawdown Pension allows you to vary future income levels to fit in with your overall financial plan. This can be done either by use of Drawdown Pension (flexi-access drawdown) or short-term annuity purchase. Phased retirement can also be used with Drawdown Pension. You don’t have to buy an annuity when you want to start taking an income, instead, you can put off buying an annuity and, in the meantime, you can take an income direct from your pension fund.
Lifetime Annuity - You may leave your existing pension fund with your current provider or transfer the whole of your fund to another provider. If you wish you can then take a tax-free cash sum (known as a pension commencement lump sum) and purchase a conventional lifetime annuity (compulsory purchase annuity) which guarantees you a lifetime income.
Phased retirement using Drawdown Pension - It’s possible to combine phased retirement with a Drawdown Pension, which means you could start to draw an income from part of your pension fund (including the tax-free cash sum available on it) whilst leaving the rest of the fund intact. To increase your income at a later date you could either increase the rate of withdrawal or start to draw an income (including the tax-free cash sum) from a further slice of your pension fund.
Each time you start using a portion of your pension fund for Drawdown Pension, you can first take part of the portion’s fund as tax-free cash (normally 25%). Converting portions of the fund regularly e.g. once a year means you can effectively use the tax-free cash, as well as the Drawdown Pension payments, to provide your income.