Taking an income each year from your retirement saving

Unsecured Pension Plan (formerly Income Drawdown) is the name given to the facility to continue to keep your retirement savings invested and take an income each year rather than buying an annuity. This facility can only be continued to age 75, at which time an annuity has to be bought or the money transferred into an Alternatively Secured Pension.


The income that can be taken from an Unsecured Pension arrangement can be varied each year between a minimum and a maximum. The minimum is £0 and the maximum is 120 per cent of a pension calculated according to tables produced by the Government Actuaries Department (GAD). These tables are based on the amount your fund would buy as an annuity based on your life only and with no allowance for any future increase. The maximum amount needs to be recalculated every 5 years.

Taking a tax-free lump sum is a once only event. If you enter into an Unsecured Pension arrangement, you can take your tax-free lump sum at the start or wait until you come to buy your annuity. You cannot take a tax-free lump sum more than once.

The maximum lump sum you can take is 25 per cent of the fund at the time. Taking a lump sum is not possible after age 75. So, if you move from an Unsecured Pension into an Alternatively Secured Pension at 75, without having taken a lump sum, it will then be too late.

An Unsecured Pension pays you an income while leaving the remainder of your pension fund invested for potential further growth, and:

- allows you to take control of how and when you receive your retirement income, so you can retire fully or semi-retire

- you can choose from a range of investment funds, but remember the performance of the fund(s) will affect the income you receive

An Unsecured Pension is an alternative to an annuity. If appropriate, it may provide flexibility with your retirement income options by paying you an income while leaving the remainder of your pension fund invested for further growth potential. It is a way of taking an income from the money you’ve built up in your pension fund.

While you’re making withdrawals from your pension fund, the remainder of your fund continues to be invested, giving it the potential for growth, free of UK Income and Capital Gains Tax. However, the value of the fund can go down as well as up and is not guaranteed.

You can choose to take income from your pension fund from age 50 (this will change to age 55 from 6 April 2010). Most personal or stakeholder pensions allow you to take a tax-free cash lump sum, normally up to a maximum of 25 per cent of the fund value, so, the first step is to decide how much tax-free cash you want to take, if any. Then, the rest of your pension fund can be invested in an Unsecured Pension and this is then used to provide you with a regular income.

The government sets a maximum limit of how much you can take as income in any 12-month period from an Unsecured Pension. However, there’s no set minimum, which means you could actually delay taking an income if you want to and simply take your tax-free cash lump sum. The amount of yearly income you take must be reviewed at least every five years.

From age 75, an Unsecured Pension is subject to different government limits and become known as Alternatively Secured Pensions. But you will still be able to receive a regular income while the rest of your fund remains invested. There is a minimum amount you have to take as income from an Alternatively Secured Pension.

If you haven’t already taken your tax-free cash lump sum, this option will no longer be available to you from age 75.

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