Fixed Term Drawdown is a relatively unknown product which allows you to take a fixed level of income, for a fixed term and often have a guaranteed maturity amount at the end. Once you have selected your required income and term, an interest rate is applied to your fund to provide some growth. This is a more cautious form of drawdown as it’s not linked to investments and has no ongoing charges (like investment drawdown).
It is sometimes used to run a fund down over a number of years, rather than withdrawing the pension in one lump sum and being faced with a large tax bill.
Someone with a £100,000 fund who wants to take full 25% tax-free cash and then take the rest out as quickly as possible, but only has £10,000 of tax allowance left at basic rate 20%. Investing £75,000 and taking over 8 years allows an income of £9,995 pa. No fluctuations or ongoing costs, simply a known amount each year. (Figures based on a live quote July 2015)
Take tax-free cash but no income.
People often want to release the tax-free cash element of their pension but are still working and therefore don’t need any further income for a number of years, maybe until state retirement age. Let’s look at 56-year-old with £100,000, who wants 25% (£25,000) tax free cash but no income for 10 years.
£75,000 initially invested provides a Guaranteed Maturity Value of £93,000 (live quote July 2015)
As Fixed Term Drawdown falls under the same legislation as Investment Drawdown, the death benefit are the same. Any unused assets on death can be passed onto your estate.
A limited number of providers offer fixed term drawdown. If you’d like to find out more just give us a call.