Choosing Between Income Drawdown and QROPS

Income drawdown is an option you can use to pay yourself an income from your pension pot when you retire. It is used as an alternative to taking an annuity by many people. However, it offers no guaranteed income unlike an annuity where you are assured of a fixed sum every year but you lose your savings pot to the annuity provider. In an income drawdown, you are allowed to keep some or your entire retirement fund and can even make a fresh investment with the fund, even as you take an income from it. The income can be anything from £0 to what an annuity would pay you for surrendering your fund to them. You can even vary the income you take from the retirement pot but the higher your income, the more it will eat into your retirement fund. You must remember that the maximum amount you can draw down is linked to your comparable annuity rates. These rates are reviewed every three years and annually after the age of 75. If your retirement fund balance has dropped in value because of poor investment or because you drew a large income out of it, and your comparable annuity rates have fallen substantially since last review, you will suddenly find your income has dropped down drastically. This has in fact happened to many people who saw their incomes halved due to a combination of falling stocks and annuity rates. The frequently changing policies are also responsible for making Income Drawdown a risky way of investing your retirement fund. QROPS or Qualifying Recognized Overseas Pension Scheme, on the other hand, is a scheme that one can use if you plan to retire overseas. Switching to a QROPS offers a lot of flexibility. The tax that you pay with QROPS is much less than any other pension plan in UK and there is absolutely no restriction over transfer of funds to the family members.