Income drawdown can be used as an alternative to taking money out of your pension when you’re not yet ready to retire but you’ve reached the retirement age. Also, further tax on pension drawdown may apply if the total value of your pension is above the pension lifetime allowance of £1,073,100 for the 2022/23 tax year. However, any withdrawal after taking your 25% tax-exempt lump sum is taxable as earnings in the withdrawal tax year. This pension drawdown rule means that 25% withdrawn from your pension is not subject to income tax. How pension or flexi-acess drawdown works is that you can take up to 25% of your pension as a tax-free lump sum while your remaining pension savings left invested in your pension. However, there are exceptions, such as terminal illness. Under the current pension drawdown rules, drawdown generally becomes available at age 55 (57 from 2028). Since 6 April 2015, all new drawdown pension plans have the flexi-access drawdown option available. You could make regular monthly or annual withdrawals, or take a series of lumpsum payments when you need it. Pension drawdown means that there are no restrictions on how much money you can withdraw from your pension savings each tax year. Any unused funds are passed on when you die tax-free. As an investment, these funds tend to be looked after by wealth managers who act on behalf of the beneficiary. Taxed as income, a drawdown fund can be accessed in the form of lump sums or as a steady, regular income (or both). Pension drawdown gives the holder the ability to take an income from their pension pot while leaving the rest invested in the stock market. For further information about pensions, see our pension guide. How does a drawdown pension work, and what does it mean? This article will answer these questions and more. You can take some or all of it as cash.A drawdown fund is invested in the stock market to provide a regular, adjustable income.An annuity gives you a guaranteed income for life or a fixed term.
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