If you are age 55 or over, you can withdraw up to 25% of your pension fund tax free. However, it is important to carefully consider how best to achieve this.
Traditionally, a pension fund remains until the planholder decides to retire. At that time, he or she would purchase an annuity and probably withdraw some of the fund as a lump sum.
These days, there are many choices, including annuities, with profits annuities, impaired life annuities and drawdown. It is Drawdown, that I wish to focus on, because it has a unique feature.
With a drawdown plan, you do not have to take an income.
For some, this can be a very useful financial planning tool. There may be time when you would like to release capital, for property purchase, clearing debts, for business purposes, university fees. The list goes on.
However, you may not want to take an income yet. For instance, if you are still working and wish to leave your pension fund to grow until you do retire. Or maybe you have other assets, such as an investment portfolio, or a spouses income.
Essentially, a pension fund can be regarded as an investment from which you can make a withdrawal and leave the remaining fund invested. How it is invested is a matter of great choice. There are some excellent pension funds, enabling a portfolio to be put together.
Of particular interest to many of my clients are the portfolios based on ‘Modern portfolio theory’. This is based on the work of Harry Markowitz, who won a Nobel Prize in 1990 for his work. He argued that higher risk (and therefore higher growth potential) funds could be added to a portfolio and actually reduce the risk of the portfolio as a whole – An important consideration during volatile markets. There is quite a lot of technical explanation behind this. Literature on this subject can be provided from my office.
At Professional Wealthcare in Camberley, we have been looking after our clients pension assets for many years. At whatever stage of your retirement planning you are, we can help you to make the right choices. Whether you are accumulating your pension fund, or planning to take lump sum and / or income benefits careful planning is essential.
