Most people buy a lifetime annuity at the point they retire, but there are alternatives.  The most common alternative is called ‘income drawdown’. 

Income drawdown allows you to defer the purchase of your pension, and allows you to take an income while leaving your pensions savings invested. 

Income drawdown is not available from MGM Advantage but this summary aims to help you to understand the options available to you.

How income drawdown works

The income is generated either by keeping an amount equal to the income you want to withdraw each year in cash, or simply selling investments to generate income when you need it. As with all pensions, income withdrawals are treated as earned income so tax is payable.
The amount of income you can take each year can be varied.  There is a maximum level of income you can draw, but no minimum. The maximum is broadly equivalent to 120% of the amount you would get from a ‘single life’ lifetime annuity.  Remember this is not a lifetime annuity so there is no guarantee that your money will not run out if you take the maximum each year.

The amount of income you withdraw is reviewed every five years by your pension provider. This is to make sure the income levels conforms to the limits imposed by HMRC (HM Revenue and Customs).
You can decide at any time to buy a lifetime annuity (or a short term annuity) with the amount remaining in your fund, or part of it, at any point.
In any event, when you reach age 75 you must either buy a lifetime annuity or opt for an alternatively secured pension.  This is a form of income drawdown and works in a similar way, but has more restrictive income limits and death benefits.

If you die before age 75, whatever remains in your income drawdown fund can be left to your partner and any dependants. They then have three options; take a lump sum subject to 35 % tax, continue income withdrawal or purchase an annuity.

Income drawdown is a complex area and usually only suitable for people with large pensions funds. If you think this might be right for you it is important to get professional advice.

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