Pension drawdown has become a popular way of investing during your retirement. Pension drawdown can generate a regular income by reinvesting your pension pot in funds specifically designed and managed for this purpose.
ETX Capital’s Content Manager, Annie Charalambous, said: “Pension drawdown occurs when you continue to invest into a pension whilst simultaneously withdrawing money from it, essentially giving yourself a steady ‘income’ out of your own pension pot.”
The income generated from this will vary according to the fund’s performance.
How does it work?
Typically you can choose to invest up to a quarter of your pension pot as a tax-free lump sum.
If you take too much out early on your investments could suffer and you may be left with little to live on.
It is important to note that there are normally charges involved with withdrawing funds which could be expensive.
What are the pension drawdown rules?
The rules for pension drawdowns changed after April 6 2015.
You could, for example, withdraw it all at once, take monthly payments to mirror a wage, withdraw an annual ‘salary’, or tip into your fund as and when you needed to.
Although this may seem like a great, flexible way to invest, be warned, pension drawdown might not be the best option for you.
You could run out of money if you drawdown too much too quickly and you may face high withdrawal chances.
At the end of the day you are investing so you are exposing yourself to risk, although this option may offer high rewards if it is not managed properly or the markets drop you could quickly see your pension pot vanish.
Be sure to do your research and to consider whether this option is the best investment for you.