Unsecured pension which is also sometimes referred to as unsecured income is the name given to taking your pension benefits without buying an annuity for people under age 75. In most contexts this means an income drawdown contract, and in fact many providers will refer to their income drawdown as an unsecured pension, (or alternatively secured pension if you're older than 75. But there are a few other versions of unsecured pension on the market which are not income drawdown contracts - most notably the Living Time Annuity.

There are some major differences between unsecured and alternatively secured pension under an income drawdown plan, however the basic workings of the plan are the same, in that you take money from the plan and don't buy an annuity, and have the same investment choices.

Income drawdown and unsecured pension

One of the main differences between unsecured pension and alternatively secured pension under   income drawdown is the income levels. Under unsecured pension:

• the income can be varied between no income at all and 120% of limits set by the Government's Actuary Department (GAD)
• this upper limit is approximately 20% more than a single life conventional annuity
• the maximum income is based on the fund value and GAD rates applicable at outset
• the income is reviewed each every five years, and a new maximum set
• the new maximum depends on the value of the fund and the then current GAD rates
• you can elect each year to have the income limits reviewed

Under alternatively secured pension the maximum income is lower and income levels are revised annually.

Tax-free cash and unsecured pension

It is possible to defer taking some or all of your tax-free cash under an unsecured pension, by taking out what is known as a phased drawdown plan. This means that you can take a portion of your tax-free cash, and maybe a small amount of taxable income or perhaps no taxable income. This is not possible under alternatively secured pension since all the tax-free cash has to be taken at outset, or it is lost.

Death benefits is the other area in which there are significant differences under income drawdown for alternatively secured pension and unsecured pension. See unsecured pension - death benefits, and alternatively secured pension - death benefits for more details.

If you have a question about unsecured pension, or just want to discuss your pension in more detail then phone us on 0800 011 2713 or contact us online

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