Income Drawdown: An Annuity AlternativeAlthough the majority of people believe that at retirement, pension income from a personal pension has to be paid via an annuity; there are in fact 2 alternatives: Capped Drawdown and Flexible Drawdown.

What is Drawdown?

The concept of Income Drawdown was first introduced by the Finance Act 2005.

The idea is that rather than use your entire pension fund to purchase an annuity, you can instead take an income directly from your existing fund. You are in control of how much income you take, having the ability to turn the ‘income tap’ on and off, provided you do not take more than the maximum allowable income each year.

Drawdown was initially available via an Unsecured Pension (USP) prior to age 75 and an Alternatively Secured Pension (ASP) post age 75.

In 2011 the coalition Government formed the new drawdown methods of capped and flexible to replace USP and ASP because of the income restrictions and higher tax charges for people taking ASP. The reality was that whilst many people used USP, at age 75, switching to an annuity became the most common option.

How do Capped and Flexible differ from the existing methods?