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If you’re nearing retirement age, it’s time to think about how you could take money out of your pension pot.

There are many ways in which you can manage your pension to get the most out of what you’ve saved - with one popular option being a pension drawdown. But is a drawdown pension a good idea?

In this article, we’ll answer questions such as “how does pension drawdown work?” and “how do I find the best performing drawdown pensions?” to help you better understand this financial decision and see how pension drawdown could work for you.

So: is a drawdown pension a good idea for taking money from your pension? Let’s find out.

What is a Pension Drawdown?

A pension drawdown is an arrangement by which you can remove money from your pension to support your lifestyle and keep you funded, while the rest of your pension pot stays invested and may continue to grow.

As opposed to an annuity, which provides regular, fixed payments for a period of time or the rest of your life, a pension drawdown is more flexible and can be organised in your preferred manner. 

The amounts you may withdraw are controlled by you – and you can arrange for them to be paid on a regular basis or ad hoc. But, always take into consideration income tax levels as you will be charged tax on your withdrawals above the first 25% withdrawal which will be tax-free

Of course, there are some pension drawdown considerations you must take – you will need to manage the amount of money you withdraw to ensure you don’t run out of funds in later life, plus as your pension is still invested, it can be susceptible to market crashes or poor performance.

What are the Benefits of a Drawdown Pension?

The main benefits of using pension drawdown is the flexibility involved and the ability to keep your remaining funds invested to continue building your pension pot while benefiting from being able to withdraw funds. Using Pension drawdown will also generally allow you other ways of taking your money, like purchasing an annuity in the future.

 

You can choose to only withdraw any growth funds you receive from the investment of your pensions, or take money from the main pot, but please note that this could take a few days. A drawdown pension is not like your current bank account, where your fund is available for instant access.

 

Who are the Best Pension Drawdown Providers?

Most pension providers offer pension drawdown when it comes to your retirement funds – so seeking out the best drawdown pension providers can be a bit of a minefield. 

Many firms implement drawdown pension charges, including fees for set up a regular payment, fees for withdrawing your money and monthly fund management payments. Before deciding on your pension drawdown provider, it’s worth checking across the market to see if you can get lower charges by moving your pension fund to a different provider.

In order to achieve the best deal and make the most of your savings, we highly recommend that you speak to a drawdown specialist, who will help you to put together a retirement and income plan to make sure you’re making the most of your pension fund. Within the retirement plan, the adviser will help you to maximise tax efficiencies and how much you can realistically take out of your pension without running out of money.

You need to trust that your pension funds will be invested in a sensible manner, that you understand any charges involved and that you are always receiving the best possible advice.

Is a Pension Drawdown Right for Me?

So – is pension drawdown a good idea for someone in your specific circumstances?

As we mentioned earlier, you will need to be 55 or over before drawdown pension providers will allow you to take money out of your pension.

There is a possibility of increasing the value of your remaining pension pot after withdrawing the permitted tax-free 25% (or more, with tax) by investing it in the right places. However, as with most investments, Capital is at risk, and the value of your investments can go down as well as up.

Where to get Tailored Pension Drawdown Advice

The best way to decide whether a drawdown pension is a good idea for you is to seek pension drawdown advice from the specialists at Hilltop Finance. 

We will discuss your current pension plans with you in detail and work transparently with you in order to determine whether this approach offers a promising way forward for you and your money.

The team at Hilltop Finance have combined experience of over 100 years in the financial advice sector, and have an in-depth understanding of the range of options available. We provide an unbiased, FCA regulated service, with the aim of helping you to get the very most out of your savings.

A drawdown pension may open a number of doors for you financially, but there are also risks involved. For specialist advice and guidance, contact Hilltop Finance today.