My Pension Doesn’t Allow Income Drawdown — What Are My Options?

I’m approaching pensionable age and want to take advantage of pension drawdown to fund my retirement. However, I’ve been told that my pension provider doesn’t allow income drawdown from my pension pot. What are my options given that I want to use drawdown imminently?

Question asked by Francis Connelly

Not every pension provider has to offer income drawdown from their pension products. While most modern plans will have this as an option, some older plans may not. This is because, while the pension freedoms greatly liberalised the UK pension regime, they didn’t force every defined contribution pension provider to offer pension drawdown across their pension range.

You haven’t said why your pension provider won’t let you draw down your pension. It may be because the provider simply doesn’t allow it; however, it may also be that your provider imposes a limit on drawdown based on your pension funds. This means that your pension plan will only allow you to draw down your pension if you have more than a certain amount of funds held in it.

What Can I Do if My Pension Plan Won’t Let Me Drawdown My Pension?

If your pension provider won’t let you draw down your money purchase pension, you have the option to transfer your pension to a provider which will.

A defined contribution pension transfer involves moving your pension from one place to another. This might be as simple as switching pension funds with the same provider or moving your pension pot to an entirely new provider depending on your needs.

Note that you might have to pay exit fees and charges on leaving your old pension, plus potentially a fee to make the transfer.

It’s also worth considering that if you transfer, you might:

  • Lose any right you had to take your pension at a certain age (a fixed or guaranteed retirement date)
  • Lose any fixed or enhanced protection you have when you transfer
  • Lose any right you had to take a tax free lump sum of more than 25% of your pension pot (an enhanced pension commencement lump sum).

Another loss to consider is any guaranteed annuity rate that you might be entitled to. This is a promise from a provider to pay a higher annuity rate than might be available on the open market. Make sure you understand the value this or any similar benefits to your old scheme before deciding to transfer.

For the above reasons, we’d always recommend speaking with an adviser before undertaking a pension transfer to ensure it truly is the best option for your circumstances.

Should I Transfer My Pension to Access Drawdown?

Drawdown may not be the right option for you. Not everyone is well-suited to drawdown; for instance, someone with a smaller pension pot may not be best-served with drawdown providing their pension income.

This is because smaller pots are more likely to run out, especially if you take too much, too soon and don’t otherwise plan for how long your pension will last.

You can use our Income Drawdown Calculator to work out how long your pension will last depending on its size and the income you need.

Ultimately the best way to decide whether drawdown is the best route to secure a retirement income is to ask an adviser — the team at Drewberry are more than happy to help, please don’t hesitate to pop us a call on 02084327334.

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