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The Facts About SIPP Drawdown as Retirement Income

Richard Beardsworth Pension Expert

By Richard Beardsworth.

Independent Financial Advisor

More Reading on Self Invested Personal Pensions...

While a Self Invested Personal Pension (SIPP) is one of the most popular and unique forms of pension, a SIPP drawdown plan can be likened to those found in other forms of pensions.

This is due to the fact that the majority of a SIPP's uniqueness comes during the lifetime of saving. Once the policy holder reaches retirement, they will find that most pension plans become somewhat similar. In basic terms, the owner can use their pension fund for income through either using the whole amount to purchase an annuity, or can take an income directly from the fund itself. This is known as a pension drawdown.

The individual has two main initial options when deciding to take a drawdown from their SIPP pension. First, they may either turn the entire SIPP into a drawdown pension, setting the entire fund aside for regular withdrawals. Alternatively, they can undertake a phased drawdown, where only part of the overall fund is allocated to withdrawals.

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Continued Growth with SIPP Drawdown Plans

The amount that can be drawn from a SIPP is limited in the same way as any other pension. This means that a significant sum will remain within the policy, and therefore remains invested in whatever the policy holder decided upon as part of their original investment strategy. Many choose the early part of their retirement and the time around their first SIPP drawdown income to revise their investment strategy, particularly if it has remained constant for a long period. Some choose to adjust it based on their current interests, while others will maintain the services of an independent financial adviser to assist in the decision.

The Goal of SIPP Drawdown

When using a SIPP for drawdown purposes, the perfect scenario entails investments that yield enough to cover three crucial outgoings: the drawdown itself, the fees charged by the SIPP provider and enough to cover inflation and cost of living increases. It can also be worth continuing to monitor the status of the SIPP against an equivalent annuity, ensuring that the return remains higher than another type of policy.

Considerations when Choosing SIPP Drawdown over an Annuity

Aside from having to continue to monitor investment performance, it is also essential for anyone considering a SIPP drawdown to understand the implications of using their policy in such a way.

As retirement approaches, many individuals will be well served by carrying over some of their investment enthusiasm in their SIPP into deciding what to do with the pension when the time comes to draw an income. While annuities are a certain option, a savvy investor with confidence in their choices can potentially extract better value through a SIPP drawdown.

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