Two questions on drawdown, please.

dgbshifnal

1.) Can one have a drawdown arrangement with an enhanced rate annuity?

2.) If there is a pot of £100K; drawdown of, say. 6 x £5K. Annuitant dies, leaving £70K. Is there an automatic 35% deduction for tax; what, if anything, are a surviving spouse's options?,

Thanks

EdInvestor

dgbshifnal wrote: »

1.) Can one have a drawdown arrangement with an enhanced rate annuity?

No.The maximum income allowed from drawdown is already enhanced at 120% of the level annuity rate.

2.) If there is a pot of £100K; drawdown of, say. 6 x £5K. Annuitant dies, leaving £70K. Is there an automatic 35% deduction for tax

There is, if the remaining fund is taken in cash.You are also assuming it seems that the invested fund will have no earnings, possible but very unlikely over 5 years.

what, if anything, are a surviving spouse's options?

The pot can remain in drawdown or can be used to buy an annuity for the spouse.In both cases there will be no 35% tax reduction, as the tax will be taken from the income instead, in the usual way. The spouse's tax position may of course be different from the that of the deceased and this should be considered.

jamesd

You can split the pension pot and buy an annuity with part of it and use drawdown with the remainder if you like.

If you're willing to accept the investment risk then the presence of health risks that merit an enhanced annuity also suggest that drawdown may be the better way to protect the surviving spouse. That's because the whole of the remaining drawdown pot is inherited. With an annuity the spouse typically gets half, if a spouse option is chosen at all (and if it isn't, the spouse gets nothing once the guarantee period ends, if a guaranteed minimum payment term was chosen).

One useful option is to take the maximum possible income from drawdown but invest 15% of the income in a stocks and shares ISA. That still gives more income than a standard annuity (but less than enhanced) and starts to build up an emergency money fund for things like medical care.

The investment growth and income should over the long term cover most of the income being taken via drawdown. There will be years when that's not true and the capital value drops due to stock market fluctuations but retirement is a long term plan so that's not a great cause for concern, unless you aren't comfortable seeing such things. You do things like selecting a range of investments and keeping a year's worth of income in savings to smooth out the variations so that your income isn't directly linked to stock market ups and downs.

Both stocks and shares ISAs and drawdown can use several investment types that aren't stocks and shares, so there's a very broad range of ways to invest available.

Also available within income drawdown are a range of investments that are called structured products. Those can provide more predictability if that's desired for some of the money. They can in effect be used to produce the same sort of certainty as an annuity for part of the capital.

You or your IFA working with you would select a mixture that's expected to vary no more than you're comfortable with. 20% or so is about the lowest variation if you want the investments to pay for the income and grow with inflation, on average.

The spouse will be able to make their own choice after the other partner dies. That can be drawdown, annuity or a mixture of the two.

dunstonh

1.) Can one have a drawdown arrangement with an enhanced rate annuity?

You can get an enhanced annuity with a capital buy back.