In detail

Converting your pension fund into a regular income is probably one of the most important financial decisions you'll make in your life. You don't have to make a choice until you're coming up to your chosen pension age; however it's useful to understand your options. It's particularly important to understand that, once you buy an annuity, its terms can't normally be changed.

When the time comes, you should consult a Financial Adviser to make sure that any action you take is suited to your individual needs.

The plan can allow you to take a tax free cash sum at outset, and delay buying an annuity until it suits your circumstances (although an annuity must be bought by age 75). You decide how much income you take each year, subject to Government limits. The rest of your plan value remains invested in our unit linked funds until you buy an annuity. You can start an Income Drawdown plan from age 50 (55 from April 2010).

The minimum investment for a Scottish Widows Income Drawdown plan is £100,000 after tax free cash. Where we receive both protected rights and non-protected rights transfers, it is the total that must exceed this level. However, each part must be at least £7,500 after tax-free cash has been paid.

The minimum additional payment to an existing Scottish Widows Income Drawdown Plan is £7,500 after tax-free cash has been paid.

Scottish Widows Income Drawdown Plans set up before 6 April 2006 cannot accept additional payments.  Instead, any such payments must be made to a  new plan.

Each year you can decide the level of income you want to take, subject to Government limits. You can change it at any time, within these limits. You must use the remaining value of your plan to buy an annuity (or annuities) by age 75, or earlier if you wish.

You can decide to transfer the remaining value of your plan to another income drawdown plan. You can normally transfer at any time prior to your 75th birthday, but not within the first year of taking out your Scottish Widows Income Drawdown plan.

The remaining value of your Income Drawdown plan will be used to provide benefits for your spouse, dependants or other beneficiaries. The value can normally be paid as a lump sum, subject to tax at 35%. Or, the value can be used to provide a spouse’s or dependant’s pension (or pensions). Such pensions are treated as earned income, and are normally subject to income tax in payment. Unless you are single at the date of death, any Protected Rights fund must be used to provide a pension for your spouse.

If your plan is arranged under an individual trust, we will pay any lump sum benefit to the trustees, who will then decide to whom the benefits are paid. Otherwise, Scottish Widows will decide who the benefits are paid to. You can inform us of who you wish to benefit, and how, by completing a nomination form.

Normally no Inheritance Tax will be payable on the value of your plan, unless the death benefits are paid to your estate.

The plan charges will be detailed in your Personal Illustration, which also shows the effect these charges may have on the value of your plan. You can use your Personal Illustration to compare our charges with those of other income drawdown providers. You can also compare the income you might receive from your Scottish Widows Income Drawdown plan, with the income that an annuity would provide.

If you buy an annuity, you normally convert the value of your pension into a secure income (although investment-linked annuities are available, the income from which can fall or rise depending on investment performance e.g. a Unitised Annuity). Because of the assumptions annuity providers make regarding life expectancy, you may benefit from ‘pooling’ the value of your pension with those of other individuals (this is often referred to as ‘mortality gain’). Once bought, you can’t normally change the terms of your annuity.

If you choose an Income Drawdown plan, you will invest the value of your plan in a range of Scottish Widows unit-linked funds, with the aim of benefiting from potential investment growth, and increased flexibility. However, as the value of investments can fall as well as rise, so can the value of your plan. In addition, annuity rates can change at any time. This may mean that your income drawdown plan provides less income over the longer term than would have been available had you used the whole value of your pension plan to buy an annuity at outset. Also, the longer you delay buying an annuity, the less you can benefit from ‘mortality gain’.

The income you take may be greater than any growth in the value of your plan.

A financial adviser can assess your attitude to risk, as well as your income requirements, to help you decide whether or not income drawdown is suitable for you.

Your financial adviser will help you to decide how to invest your plan. Scottish Widows offers a broad range of unit-linked funds for you to choose from; some managed by us and some by other fund managers. You can invest in up to 10 funds at any one time. You may also be able to switch between funds to change your mix of investments, although there could be a charge for this. We may change the selection of funds we make available at any time.

If you don’t want to take all your tax free cash sum immediately, Phased Retirement can allow you to leave the majority of the value of your pension plan invested, but take a mix of taxable income and smaller tax-free cash sums until you decide to buy an annuity (or annuities) with the remaining value of your plan.

The taxable income can be provided by using part of the value of your pension plan to buy an annuity (or annuities), or by moving that part of your pension plan to income drawdown, at various intervals. Each time you use part of your Phased Retirement plan to provide income, you can also take a tax free cash sum.

You must use the remaining value of your pension plan to buy an annuity (or annuities) by age 75. It is possible to use the value of the plan to buy an annuity from another pension provider.

Phased Retirement is not available for Protected Rights.

Before making any decisions, you should consult with a Financial Adviser.

Check our easy comparison table. And ask your financial adviser for further advice, to ensure you make the right decision for you.