Drawdown pros and cons
If you are at the stage when you are beginning to consider your retirement, there are some lessons to learn from half a decade’s experience of pension drawdown:
A full withdrawal can make sense for small pension pots, even though 75% of the amount received is subject to income tax under PAYE. As the pot size increases, income tax and the operation of PAYE become bigger issues. Full withdrawals account for nearly 90% of payments from plans valued below £10,000, but for only about 1% of pots of more than £250,000.
Flexi-access drawdown is by far the most popular means of drawing from pension plans valued at £100,000 or more. However, it is probably still too early to say whether those who choose this option without taking professional advice are making a sustainable level of withdrawals.
Flexibility in law may not mean flexibility in reality for your pension plan. Many providers of large group schemes, and insurers with pre-2015 pension policies, decided not to offer all the options that legislation permits. In some instances, the only flexibility is the ability to withdraw in full. If you find yourself with such a plan, you may wish to seek advice about transferring to a more flexible arrangement.
Whatever decisions you make about managing your retirement income, it's a complex area. To make sure you understand your options clearly, it is imperative that you seek expert advice.
