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The Disadvantages of Taking a Late Pension Drawdown by Dave Woods
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The Disadvantages of Taking a Late Pension Drawdown |
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Finance & Investment
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Most pension plans allows individuals to take a tax free cash pension lump sum, pension drawdown immediately from their income drawdown plan to invest or use as they wish. This option is available through open market options and annuities. However, it is not available under the phased retirement option. As much as the level of income is flexible as it allows individuals plan in advance the level of income to take each year from income drawdown, the pension drawdown has some disadvantages that highlight the need of taking a pension annuity earlier. They include: - There is no absolute assurance that the individuals earnings will amount to those offered by the pension annuity.
- The high withdrawals made can destroy the monetary worth of the pension fund more so when the investment returns are not enough to supplement for the balance. This can limit the amount of the pension annuity.
- With the effect of mortality inhibiting the value of the pension fund, the fund may fail to achieve the necessary level of its growth to balance the income levels with those that have been secured by buying a pension annuity bought at the outset.
- Uncertainty of the annuity rates as there is no guarantee that rates will be much better in the future. They may reduce at the moment the individual purchases the pension annuity as compared to the recent rates. The pension bought may be of a lower value than if the individual had purchased it at the outset.
- Failure to have a proper investment performance may end up with the individual not having enough funds to buy enough annuities that are equal to the sum that could have been received.
- The death benefits that are to be paid in lump sum to the spouse may be eligible to the inheritance tax with an addition of a higher tax charge.
Before making a decision regarding pension lump sum, pension drawdown, visit your financial advisor and learn more on the pension annuities. Get the chance to compare annuity rates and consider a more personalized annuity quote that offers the best guaranteed rates. About the Author: Dave Woods writes about pension lump sum pension drawdown. To know more, visit http://www.local-pension-advisor.co.uk/.
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