Drawdown reason why letter

The file should provide evidence that the following points have been taken into account and addressed as part of the suitability report:. We recommend these include conversations in relation to flexi-access drawdown, uncrystallised funds pension lump sums, annuities or enhanced annuities, scheme benefits and the small pots allowance where appropriate.

It may be that the client is looking to access their lump sum only. In this case we recommend that the amount they need and why is recorded in the fact-find and suitability report, as well as the other options considered. You'll also need to consider any potential inheritance tax liability. Where a flexible income is being recommended, the suitability report should advise the client on the annuity that could be purchased with the fund and should confirm that the client can move into an annuity at any time.

It's important to capture the conversations you have with clients around attitude to risk, capacity for loss and expanding on the answers given in the risk profile questionnaire. The suitability report should then take into account the personalised conversations you had covering these areas.

The report should also note the disadvantages of the drawdown recommendation, as well as all the relevant risk warnings in the main body of the report. It's expected that the suitability report will document how the client is being recommended to take an income and how this impacts income tax and their lifetime allowance.

Where relevant, the client should be made aware of any reduction in their annual allowance as a result. Develop and improve products. List of Partners vendors. The term "drawdown" appears in both the banking world and the trading world, but it has very different meanings within each context. In banking , a drawdown refers to a gradual accessing of credit funds, while in trading, a drawdown refers to a reduction in equity.

Within the context of banking, a drawdown commonly refers to the gradual accessing of part or all of a line of credit. The arrangement with a bank can be either personal or business-related. An example of the use of drawdown for an individual borrower is a homeowner who applies for a line of credit with a bank, intending to make major home improvements.

Since he does not plan to do all of the work at once, it is to the borrower's advantage to only draw down funds as needed from the line of credit that the bank extends to him. By only withdrawing funds as needed, the individual keeps his level of debt at a minimum and is only paying interest on the borrowed funds that he has actually used.

It would be inefficient management of capital, costing the borrower unnecessary interest charges, for him to borrow the total amount all at once, thus incurring the maximum level of indebtedness before he knows the actual amount he needs to complete the proposed improvements or before he needs the money. A lender and a business may make a similar arrangement. For example, a construction company may be approved for financing to build a housing development, but it only gradually accesses the financing funds as it completes portions of the project.

The lender may put time or project completion restrictions on such an arrangement. An example of a time restriction would be a stipulation that the borrower can only access a certain percentage of the funds every three months.

Project completion restrictions would require the borrower to show completion of a specified amount of the total project before releasing additional financing. In reference to trading, a drawdown refers to a drop in equity in a trader's account. A drawdown is commonly defined as the decline from a high peak to a pullback low of a specific investment or of the equity in a trader's account.

However, a drawdown is more accurately looked at from a peak high to a trough low to a new peak high. If your investments do well, your pension fund can carry on growing which means your retirement income will increase too. But remember, the value of your income could also go down if your investments do badly.

The money in your pension fund needs to carry on growing to replace what you are taking out. So you'll need your fund to be wisely invested to make sure you don't lose out. Make sure you get independent financial advice from a professional to help you make good decisions about using your pension fund and how it's invested.

For more information about where to get advice about your pension, see Getting financial advice. You can get more information about withdrawing income from your pension fund from the Money Advice Service website at: www. Income drawdown can be an expensive option. There will be ongoing charges for managing your investments. Rules set by HM Revenue and Customs mean that the amount of income you take out of your pension fund has to be reviewed regularly.

There are charges for this as well. Make sure you are aware of how much income drawdown will cost you when you are deciding on this option. You will have to make sure that the investments grow enough to cover the extra costs. Income drawdown can be useful if you're not ready to take all of your pension straightaway, for example where you're planning to carry on working part-time.

However, income drawdown is really only suitable if you're happy to leave your pension fund invested in the stock market so that it has a reasonable chance of growing.

This makes income drawdown a high risk choice because the stock market can go up or down. You could end up with far less income than you've planned for. For this reason, you'll probably only want to consider income drawdown if you have a large six figure pension fund or you'll have enough other regular income during your retirement.

For example, you might have income from other savings or investments. If you have a workplace money purchase pension and want to take the income drawdown option, some providers might insist you change your pension to a personal pension. You may need to take financial advice to see if this is a good option for you. For more information about workplace money purchase pensions, see Workplace pensions.

American Institute for Economic Research. Board of Governors of the Federal Reserve System. Internal Revenue Service. Accessed Apr. University of Michigan. Government Accountability Office. Accounting Periods and Methods ," Pages Checking Accounts.

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