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What is income drawdown?
Income drawdown is a flexible way to take money from your pension pot. Normally, you need to be at least 55. Accessing income drawdown lets you:
- Take money from your pension pot as and when you need it, in order to receive a retirement income
- Keep the rest of your pension pot invested and carry on contributing if you wish
- Have the option to pass on what’s left of your pension pot to your loved ones when you die
- Change your mind at any time and purchase a different retirement option
- You can take 25% of your pension tax-free, but you may have to pay income tax on the rest of the money you withdraw.
- Your income stops when the money in your pension pot runs out. The more money you take, the more likely it is that your pension will run out faster.
You’ll need an Aviva Pension starting with policy number AV2 if you want to start the process of accessing income drawdown with Aviva. You’ll find your policy number in your pension documents
If you don’t already have an Aviva Pension starting AV2, you may be able to transfer your existing pension to access income drawdown. However you must bear in mind this could be a complex decision and you need to consider the charges, fund range and any valuable benefits that could be lost. The value of your pension can go down as well as up and you may get back less than has been paid in. You may be required to obtain advice for which a fee will be charged.
Could income drawdown be the right choice for me?
Income drawdown could be right for you if you're comfortable with:
- Taking risk: income drawdown means that your pension pot remains available to invest in the fund(s) of your choice, so the value of your pension could go down as well as up in value and you may get back less than has been paid in. These fluctuations, along with the charges that are taken and withdrawals you are making, means drawdown may not provide you with an income for life.
- Taking an interest: being hands-on and regularly reviewing your income and investments from your pension to make sure your pension fund can support the level of income you want over the period you want it. The investments you've used to grow your pension are not necessarily suitable for those taking an income – you may want to review them.
- Taking some money: using your pension will affect your financial position for the rest of your life, so it's important you're comfortable with the implications of taking money from it. Before you decide to take money from your pension, make sure you think about your overall financial circumstances and any retirement goals.
Seek financial advice or take a look at Pension Wise , the government's free, impartial service to help people understand their retirement options.
If you don't think income drawdown is right for you, there are other ways you can take money from your pension.
Why choose income drawdown though the Aviva Pension
- Manage your Aviva Pension investments online
- Three ways to invest : Pick a ready made fund | Pick from our experts' suggested funds | Pick your own funds from our full range
- Choose the frequency of your withdrawals, and change the frequency and amount at any time
- Keep track of withdrawals on a regular basis
- Clear charges
- Withdraw your pension money with no additional charges
- UK based customer support
Things to be aware of
Taking money from your pension fund may affect your eligibility for any means-tested state benefits.
Beware of investment scams
Once you’ve taken income from your pension, be aware of where you re-invest it. Investment scams aren’t uncommon – look out for cold calls or texts and the promise of something which seems too good to be true.
If you are in debt, creditors may have a claim on any money you take from your pension.
What about tax?
- You can usually take up to the first 25% of your pension tax-free .
- You can leave the remainder invested in your pension and/or take it as a taxable income.
- You may have to pay tax on the money you withdraw, which will be taxed at the highest rate of income tax you pay.
- Once you've withdrawn any taxable cash, you will be subject to tax charges if you contribute more than £4,000 to your defined contribution pension in a tax year. This is known as money purchase annual allowance, (MPAA).
- Taking money out can affect your pension lifetime allowance.
- You can pass any money left in your pension pot or income drawdown onto your loved ones when you die. You can nominate anyone you choose to receive this money and they won’t have to pay inheritance tax on it.
Please be aware that tax treatment depends on your individual circumstances. This information is based on our understanding of current UK tax legislation and may be subject to change in future.
Once you’ve taken your 25% tax-free cash
Your next payment will be taxed in accordance with the standard personal allowance (PAYE tax code 1185L) on a month 1 basis – so any previous pay you have received in that tax year and any tax you have paid are not taken into account, making the need for tax adjustments at the end of that tax year more likely.
You can have taxable income of £11,850 in a tax year before any income tax is payable. Anything over this falls into the 20% (and maybe 40% and 45%) tax brackets, subject to your earnings and individual tax position.
When we make the payment, we’ll let the tax office know. If you need more details about tax, please refer to the guide in your MyAviva document library once we’ve issued your drawdown illustration, or phone HMRC on 0300 200 3300 quoting our PAYE reference number 475/VB28631 and your National Insurance number.
If you are under or over-taxed
The tax office may be able to deal with it at your next taxable payment, as long as you receive another payment from the same source in this tax year and HMRC have sent us the appropriate tax code.
Taking your money
How can I withdraw my money?
- Just take tax free cash
- Withdraw all of your money at once
- Single withdrawals – as many as you wish provided you have the funds available
- Regular withdrawals – choose from monthly, quarterly, half-yearly or yearly.
You can make changes to the amount you take and how often you take it by giving us a call.
How much can I take?
- There’s no minimum amount you can withdraw from your pension using income drawdown. Remember that the income you take could reduce the value of your pension fund.
Fund management and administration charges will still be taken when you move into income drawdown.
What happens when I die?
You can pass any money left in income drawdown or your pension pot onto your loved ones when you die. You can nominate anyone you choose to receive this money and they won’t have to pay inheritance tax on it.
- If you die before you’re 75, we will normally pay any benefits tax free to your nominated beneficiaries, at the trustees’ discretion. If you die holding funds in your Pension Account then the payment will be assessed against your lifetime allowance. Your Drawdown Account funds don't need to be. Your beneficiaries will need to pay tax on any amount over the lifetime allowance or where the benefit is not taken within two years of Aviva being told of your death.
- If you die after the age of 75 we can pay the full value of your remaining pension fund to your nominated beneficiaries, at the discretion of the trustees. Any benefits will be taxed at your beneficiaries’ marginal rate.
- If you die whilst taking benefits through income drawdown you may pass the funds on to your dependants or nominated beneficiaries.
Before you apply
Nothing on our website is a personal recommendation, but if you'd like a personal recommendation based on your individual circumstances you should get financial advice. If you would like more information, please visit our financial advice web page.
Pension Wise has been set up by the government and offers free and impartial guidance for people retiring with defined contribution pensions. It will help you understand what your choices are and how they work.
You'll be able to get help on the Pension Wise website , over the phone or face to face.
If you are approaching retirement we recommend you get guidance or advice to help you understand your options.
How to apply for income drawdown through the Aviva Pension
How to apply depends on the type of pension you have:
Aviva Pension policies that starts with AV2
If you have an Aviva Pension that starts with policy number AV2 and was taken out after 5th April 2015, you can start the application process to take money from your Aviva Pension. You’ll find your policy number on your pension documents, and on MyAviva if you’re registered.
Have a pension with a different provider?Have a pension with us that doesn’t start with AV2?
If you’re not satisfied with how your current plan lets you take an income from your pension, and you’re comfortable making your own investment decisions, you may be able to access income drawdown by transferring to the Aviva Pension. First, check what your options are when taking money from your current pension.
If you have a pension with us, you can call us on 0800 158 3470 to check.
To take income drawdown, you’ll need to transfer either:
- £5000 + as a lump sum
- £1,000 if you make regular payments into your Aviva Pension.
Before making a decision, consider the charges, features, fund range and any valuable benefits that could be lost from your current pension. If you decide to go ahead, remember that the value of your new pension can go down as well as up, and you may get back less than has been paid in. Also, you might be required to get advice for which a fee will be charged.
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