This option however, offers greater death benefits than a standard conventional or enhanced annuity.Ī fixed term annuity is written under the same Drawdown rules as flexi-access drawdown to provide a regular level of income for a specified time period e.g. However, you need to be satisfied with ongoing investment risk, in that the value of your fund and therefore your income, may go down depending on the performance of the underlying investment. However, once set up, the payment terms cannot be altered, even if your circumstances change.įlexi-access drawdown offers you more flexibility without committing to a life time annuity. So your future annuity payments are known in advance. How does it differ from other options?Ī standard conventional or enhanced annuity provides guaranteed payments for life, no matter how long that is. This option can be useful if you want to keep your options open for the future, especially if you anticipate a change in your circumstances. On death after 75, the lump sum or income is taxed at your beneficiaries' marginal rate. In the event of your death, it also gives you the ability to pass on your fund to your spouse, the next generation or to whoever you want, tax free before age 75. You can take regular income or irregular income from your fund and even postpone your income should you wish. You are able to take 25% as tax free cash, with the balance being treated as taxable income. Any references we make to taxation are based on our understanding of current legislation and HM Revenue & Customs practice which can change.įlexi-access drawdown is a form of personal pension that enables you to take an income directly from your pension fund, keeping it invested, without having to buy an annuity, hence you retain control of your pension fund and therefore your investments. This Q&A document should be read in conjunction with the Key Features Document (KFD) relevant to the provider of your flexi-access drawdown, their quotation and any other documentation they refer to. As Kevin McDevitt and I have pointed out, each bear market hits sectors and parts of the Morningstar Style Box differently.Your questions answered flexi-access drawdown My final caveat is that the next bear market will be different from the previous one, so max drawdown will not be a perfect match with the next bear market. We expect to add max drawdown to fund data pages later this year, so stay tuned. When you look at a stock fund's risk profile, max drawdown is helpful, but so are volatility measures such as standard deviation, Morningstar Risk, and downside capture, which is really partly about volatility and partly about actual losses. And we have more time periods in which to measure volatility rather than one big bear market. The reason is that volatility is a pretty good predictor of future losses-not because I think that volatility is the same thing as risk. For benchmark purposes, keep in mind that S&P 500 funds' max drawdown was just above 50%, so losses in the 30% area were a huge improvement.Ī second caveat is that while max drawdown is probably the best measure of past risk in a bond fund, volatility measures are of equal merit to max drawdown for stock funds. This is why I used the word "relatively" to modify "low risk." All equities and equity funds have risk. The 2007-09 bear market hammered equities of all kinds, so that even the most-cautious funds suffered big downdrafts. The bond funds I wrote about had minuscule losses, whereas these funds lost more than 30% from peak to trough. As you can see, even a lower-risk stock fund has plenty of risk.
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