APPROACHING
Flexi-access drawdown
Flexi-access drawdown is a revamped version of capped income drawdown
that was introduced when the new pension freedoms went live in April 2015.
It lets you snap up 25 per cent of your nest egg taxfree when the time comes, then re-invest the rest to
increase its value further and/or draw a regular
retirement income.
Unlike an annuity, income drawdown
offers you much more control over
your pension in retirement.
Typically, savers going into income drawdown will
move their pot into a Self-Invested Personal Pension
(SIPP), a pension wrapper into which you can place a
huge variety of different funds, as well as individual
shares and gilts.
As such, a SIPP allows you to mix and match holdings
to suit your income and growth needs as well as your
attitude to risk. However, as you are still invested,
your income and capital is at the mercy of markets,
and is likely to change over time, depending on
investment performance.
In terms of what to look out for when choosing a
SIPP, the main issue is cost, as the higher the
charges, the more it will erode your pot. Most
providers do not charge for setting up a scheme, but
they will charge an annual management fee.
However, SIPPs offer huge flexibility and allow you to
design your own portfolio. The challenge is getting
the balance right so that you take on enough risk to
allow your cash to increase in value over time but
not so much that your portfolio could be subject to
heavy falls.
According to experts, a medium risk investor could
have 50 per cent in equities, 35 per cent in bonds and
15 per cent in commercial property.
Key points
Flexi-access drawdown lets you snap up 25 per
cent of your nest egg tax-free when the time
comes, then re-invest the rest
Income drawdown offers you more control over
your pension in retirement than an annuity
A SIPP lets you mix and match holdings to suit
your income and growth needs as well as your
attitude to risk
The level of the cost will vary between providers, but
typically investors are charged either a percentage or a
flat fee. What will be right for you will depend on how
much money you are investing and how active you
want to be in terms of trading, as buying and selling
funds and especially shares can incur extra charges.
DESIGN YOUR OWN PO
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