Pension drawdown explained more simply

Read on and determine whether pension drawdown is a viable option for you.

16:03 24 February 2013

When people are approaching retirement, they usually take out their pension and buy annuity so they’ll receive regular monthly incomes. 

 

However, other people consider other options. One of them is pension drawdown. Let me explain how it works: Some pension schemes allow a contributing member aged between 50 to 75 years old to keep their pension fund in investment vehicles rather than buying annuity. This is what we call pension drawdown. 

 Advantages

Pension drawdown is a great option if the annuity rates are low. The fund-holder can delay the purchase and enjoy better earnings if the pension investments are performing really well. 

 

Another great advantage of pension drawdown is that it leaves residual pension plan that can be passed on to surviving relatives in case of death. 

 

The residual pension must be converted into annuity when you reach the age of 75. By this time, you’ll most likely to get attractive rates. 

 

Disadvantages

 

Pension drawdown comes with risks. If the performance of residual pension fund isn’t great, the remaining fund may not be enough to buy the eventual annuity. 

 

Another disadvantage is that, pension drawdown isn’t for everyone. This is only recommended for those fund-holders with sizeable pension fund.