If you’d prefer a more flexible option during your retirement that is not limited by a set annuity rate that will take into consideration your current health and marital status, then an uncapped drawdown could be a suitable alternative.
The great thing about uncapped drawdowns is that you are not limited to how much you can withdraw, meaning that if you want to withdraw your whole fund all in one go then you can. This is a popular option for those who still have a mortgage to pay so they can finally be in peace from the stressfully high bills still lingering over their home.
Due to the fact that there isn’t a limit on how much you can withdraw, it is required that you have an annual guaranteed income of at least £20,000. This is simply because if you do choose to spend your pension fund all in one go, you will potentially be left with nothing in the bank so by setting the uncapped drawdown threshold to a minimum of £20,000 per year it means that you will always be a basic rate tax payer.
However, on the bright side, your annual income can be made up in several ways:
- Pension Annuities
- State Pension
- Scheme Pensions
- Final Salary Pensions
Investing in an uncapped drawdown can be extremely tax efficient as in the past the highest rate of income tax was a staggering 60% and compared to todays 45%. Also, if you plan all of your income withdrawals over a set number of years, then you may end up paying just 20% on some, if not all of your pension fund. For many, this makes uncapped drawdown a desirable approach.
However, uncapped drawdowns are not for everyone. The concept of being able to withdraw money as and when you need it may prove worrying for couples who struggle to manage their money efficiently so they often opt for capped drawdowns so they have an enforced limit to how much of their pension fund they can spend at one time.
For more information about retirement alternatives, get in touch with an annuity comparison agency today to find the UK’s best annuity rates.