Income drawdown has become the flexible solution sought by many in their post working life. From a standing start in the mid-1990s, this year, drawdown accounts for over 21% of new funds earmarked to provide retirement income.
One underused feature of income drawdown is its ability to combine withdrawals of both tax-free lump sum and taxable income, otherwise known as ‘phased drawdown’. Standard Life has further developed this concept to allow automatic monthly vesting of benefits combining tax-free lump sum and income. We call this ‘dripfeed drawdown’.
Dripfeed drawdown is a very simple concept, rather than taking all of the tax-free lump sum up front; customers draw it gradually and treat the tax-free lump sum as part of their income.
This could be particularly useful for people who want to control the pace of their journey into full retirement, with this option becoming more and more common as many more people are going back to work after their official retirement date.
Dripfeed drawdown has two main advantages:
- It can help reduce the amount of income tax your client pays
- It can help maximise death benefits.
Looking at the death benefits where dripfeed is used, where the funds remain un-drawn, they can be paid without deduction of tax on death. However, any funds that have been drawn out are paid as a lump sum to a widow or dependant on death is subject to 35% tax. Dripfeed drawdown helps reduce the amount of funds drawn and hence the potential tax charge on death.
Innovative features such as dripfeed drawdown are likely to have provided another shot in the arm for the drawdown market and with the new 3rd way option of Guaranteed Income making more headway in the market then Income drawdown is very likely to become more popular.
To find out more about our dripfeed drawdown proposition or to get some advance detail on our planned Guaranteed Income proposition, contact your Standard Life Account Manager.
Any reference to legislation and taxation is based on Standard Life’s understanding of law and HM Revenue & Customs practice at date of publication. Legislation and taxation are liable to change in the future.
These examples are for information purposes only - no guarantees are given regarding the effectiveness of any arrangements entered into on the basis of these comments.
Standard Life Assurance Limited, registered in Scotland (SC286833), Standard Life House, 30 Lothian Road, Edinburgh EH1 2DH, authorised and regulated by the Financial Services Authority. 0131 225 2552. Calls may be recorded/monitored. www.standardlife.co.uk ©2008 Standard Life
