Unsecured Pension (Pension Drawdown) 

Prior to Pension Simplification, an annuity had to be bought at the age of 75. This no longer applies, although for most people with modest pension pots an annuity remains the best choice. Alternatives are to leave the fund invested and take what is known as "Unsecured Pension" (USP). You can take up to 25% of the fund as tax free cash at the same time.

The USP upper limit is worked out using tables of income drawdown rates provided by the Government Actuary's Department (GAD).  The starting point is to work out the basis amount by multiplying the USP fund by the applicable rate from the GAD table (based on your age, gender and the current gilt yield).

• The highest yearly income allowed is 120% of the basis amount.

• The lowest yearly income allowed is nil - that is, there is no need to actually receive any income, it is taken at the rate of £0.

Income can be changed each year within these upper and lower limits.

At 75, you can continue to take what is known as an "Alternatively Secured Pension" (ASP), although the limits as to how much can be taken are not as generous. On death, the value of the fund may be returned to your estate, less a tax charge, or the surviving spouse may buy an annuity.

The ASP upper limit is again worked out using tables of income drawdown rates provided by the Government Actuary's Department (GAD).  The starting point is to work out the basis amount by multiplying the ASP fund by the applicable rate for a pensioner aged 75 from the GAD table (based on the pensioner's gender and the current gilt yield).

• The highest yearly income allowed is 90% of the basis amount.

• The lowest yearly income allowed is 55%of the basis amount.

• If unrealised funds pass to your estate, in addition to the potential of Inheritance Tax, a tax charge of up to 82% will be levied

Income can be changed each year within these upper and lower limits.

The great danger here is that more may be taken in income than the investment performance can sustain and you could literally outlive your pension fund. The option of leaving the money invested is therefore usually only recommended for funds >£100,000 and where the client has alternative income producing assets.