What is Income Drawdown

In recent months, changes to tax in the United Kingdom will mean that pensioners may no longer be eligible to receive as much income as they have previously through their income drawdown pension scheme. For this reason, many pension companies are urging their clients to act fast and ensure that they lock away their drawdown rates so that they cannot be affected by the upcoming changes.

The Government made a series of changes to the income drawdown scheme in April, one of which being a number of tax and threshold reductions. These threshold reductions included a decrease in the amount that pensioners are allowed to draw on for income drawdown from their pension pot. Whereas before April they were allowed to draw up to 120 per cent of the offered rate, they will now only be allowed to draw 100 per cent which can see a decrease of up to 20 per cent of their total pension pot being available to them.

The proposed introduction of a unisex payment plan is also set to see male pension pay outs take a hit. Under the present scheme men tend to be paid more as they are high earners throughout their life, if their pay outs were to be brought in line with women’s then many of them could stand to lose up ten per cent of their current pay outs.

Pension companies have been urging their clients to lock in their investments since the start of the year to avoid the changes that were implemented on April 6, but unfortunately many people did not realise the severity of the situation and therefore stand to lose access to thousands of dollars as a result.

In addition to these cuts, recent changes to the table which is used to determine the pension pay out amounts to individuals could see certain individuals suffer even more. In addition to this the death tax for any lump sum passed onto beneficiaries has been increased from 35 per cent to 55 per cent.

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