Retirement and beyond

Frequently asked questions

Is income drawdown right for me?

Income drawdown can be taken out by people aged between 50 and 70 (from 2010 the minimum age will be 55). It could be suitable for you if:

you want the flexibility of being able to change your income to suit your circumstances
you want your pension fund to keep benefiting from any investment growth and you can accept the risk that its value may fall rather than rise
you have other sources of income so you don't need such a high income in the early years of your retirement
you want to attempt to maximise the benefits your family receive on your death and give them a choice about how they get these benefits

What is an AEGON Scottish Equitable Retirement Cash Account (our income drawdown plan)?

It's a means of allowing you to take an income from your pension fund without buying an annuity.

When you decide to start taking your pension benefits, you first decide whether you want to take a tax-free cash sum. If you do, you receive this at the outset. If you don't, you can't change your mind and take it later. The remainder of your fund is invested in our income drawdown plan, the Retirement Cash Account, in your chosen funds.

This means you can delay buying an annuity until it suits you, although you still need to buy one by age 75 (unless you transfer into alternatively secured pension). You can start a Retirement Cash Account from age 50 (55 from April 2010).

You decide how much income you take each year, subject to the Government limit, which the Government Actuary's Department (GAD) sets. The maximum GAD limit is 120% of the yearly pension that GAD decides someone in good health could get from an annuity bought on the open market.

Is there a minimum investment?

The minimum investment for an AEGON Scottish Equitable Retirement Cash Account is £50,000. Where we receive both protected rights and non-protected rights transfers, the total must exceed this level.

You can make additional transfer contributions to the plan but the minimum contribution is £499.

How much income can I take?

We'll calculate the maximum income available to you when you take out your plan and let you know your limit. Every five years after that we'll re-calculate the maximum income you can take and let you know what that is. The amount you can take depends on many factors including investment performance, annuity rates and the level of previous income withdrawals.

The maximum income you can receive is 120% of the yearly pension that GAD decides someone in good health could get from an annuity bought on the open market. It's up to you how much income you take, subject to it being within the minimum and maximum limits set by GAD. Of course, if you're lucky enough to have income from other sources, you don't have to take an income from your fund, leaving it to benefit from any investment growth.

Every year we send you an annual review pack, as well as sending a copy to your financial adviser. You'll then need to check that your plan can still meet your income needs and that it's still invested in suitable funds, particularly if your circumstances have changed. We always recommend that you speak to your financial adviser about any decisions you make regarding your retirement income or your plan.

Is the plan flexible?

Each year you can decide the level and frequency of income you want to take, within the Government limit. You can also change the level and frequency of income at any time, within this limit. You can choose when to buy an annuity. However, you must buy one by age 75 or transfer to an alternatively secured pension at age 75.

You can decide to transfer the remaining value of your plan to another Retirement Cash Account, as long as it's before your 75th birthday.

Where can I invest my plan?

You can choose the funds to suit your individual investment strategy and needs. We offer a wide range of internal funds - unit-linked and with-profits.

You can also choose to access our increasingly popular self-investment option. This gives you greater control over the spread of your investment and gives you access to over 1,200 funds, including:

stocks and shares, both in the UK and overseas
unit and investment trusts
discretionary fund managers
insurance company-managed and unit-linked funds
specialist property solutions

Because of the range of funds on offer, we always recommend that you consult your financial adviser to determine which ones might meet your individual needs and your attitude to investment risk.

You can switch in and out of various funds to change your mix of investments, although there may be certain conditions for doing so. For example, because of the nature of property investments, we can delay any switch requests if market conditions require. This is because investments in property and land may not sell straight away so you may not be able to sell your investment when you want to.

What happens if I die?

We'll pay any remaining fund to your chosen financial dependants. They can either:

buy an annuity with any remaining fund
take any remaining fund as cash, although this will be taxed at a rate of 35% (if this amount exceeds your available lifetime allowance, the amount above this will be taxed at 55%).
continue to take income until their 75th birthday, when they must buy an annuity with the remaining fund or, from age 75, transfer the remaining fund to an alternatively secured pension

If your spouse or partner dies while taking income withdrawals, any lump sum paid from the remaining fund will be taxed at 35%.

If you don't have any dependants, we'll pay the remaining fund to your estate, minus 35% tax.

What are the charges?

We charge for managing your plan and investments. We recover these charges by making deductions from your plan gradually over the years until you buy an annuity or transfer your plan.

Your personal illustration shows you the effect these charges may have on the value of your plan. If you've chosen our self-investment option, Capita SIP Services, which provides the day-to-day administration for that option, will deduct its charges from your self-invested assets.

What are the drawbacks?

The main drawback of income drawdown compared with the conventional annuity route is the greater degree of risk. For example:

Your income isn't guaranteed - it depends on investment returns and future annuity rates. If the stock market falls, you may end up with less income than if you'd chosen the traditional annuity route.
The value of your plan may reduce with the withdrawals you make and future investment returns are unknown. So it's important that you regularly review it to make sure you aren't withdrawing too much. On the plus side, if investment returns are good, you can take withdrawals and what remains in your plan will still grow.
Annuity rates vary over time. If you leave it until the last moment to convert your fund into an annuity, you'll have to accept the rates available at the time. Again though, if investment returns are good, the total fund you have available to buy an annuity may have grown.
The charges you pay for income drawdown may be higher than for a conventional annuity.

A financial adviser can assess your attitude to risk, as well as your income requirements, to help you decide whether income drawdown is suitable for you.

What other options are there for retirement income?

Phased retirement

If you don't want to take all your tax-free cash immediately, you can leave most of your fund invested in a Phased Retirement Plan. You then take a mix of taxable income and smaller tax-free cash sums until you decide to buy an annuity with the remaining value of your plan. The taxable income can be provided by either buying an annuity or investing in income drawdown. The choice is yours. Each time you take income, you can also take a smaller tax-free cash sum from the part of your plan used to provide that income.

You must use the remaining value of your plan to buy an annuity (or annuities) by age 75, or transfer to an alternatively secured pension at age 75.

Annuities

An annuity is a regular guaranteed income paid for the rest of your life that you buy with some or all of your pension fund. Once set up, it will pay you the same amount of money each year, which can help you plan for the future, as you know exactly how much you'll have each year. But it may not always offer you the flexibility you need.

Again, before making any decisions, you should speak to your financial adviser.