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Here are a few advantages and disadvantages of Flexible Drawdown.

Advantages

  • Maximum tax-free cash lump sum can be taken at outset.
  • The amount of income withdrawn can be varied each year to suit your circumstances.
  • The remainder of the fund not used to provide income remains invested and can potentially increase in value.
  • The amount of income withdrawn can be structured to ensure that income tax is minimized.
  • Any unused funds can potentially pass to your dependants free of tax.

Disadvantages

  • High income withdrawals may lead to the fund either being reduced significantly or eliminated altogether.
  • The capital value of the remaining fund may fall in value if the investments perform poorly.
  • Annuity rates may have fallen by the time you choose convert to an annuity
  • Poor fund performance may reduce the amount of income that can be withdrawn from the fund in the future.
  • Withdrawing too much income may lead to future income having to be reduced.
  • Flexible drawdown is more complex than buying an annuity and is likely to be cost more to run.
  • There is no guarantee that your future income be greater than income that could have been provided by an annuity.

With complex arrangements such as Flexible Drawdown it is essential to take professional advice before making any decisions. It is also essential to have regular reviews in place to ensure that it continues to meet your needs.