Prudential has established its first income drawdown plan for people who want to take tax-free income from their pension instead of buying an annuity.
The plan is available for people with pension funds of at least £100,000 and has a similar structure to Prudential's flexible lifetime annuity account. It provides three investment strategies cautious, standard or adventurous which cater for different risk profiles by investing different amounts into three funds. These are the Prudential with-profits, M&G managed growth and M&G corporate bond funds.
Alternatively, people can choose the self-management option that allows investors to choose their own funds. Investors can switch between the investment strategies and self-management option if they want.
There are 25 funds available, including the Prudential unitised with-profits fund, Scottish Amicable property fund and external funds managed by M&G, Merrill Lynch, Newton, Perpetual, Phillips & Drew, Schroder and UBS.
A maximum of 19 funds can be held at any one time and investors can switch between funds at any time if, for example, risk profiles change with age. The first six switches each year are free, but each subsequent switch costs £25.
The plan also offers a pension reserve facility, where policyholders can continue investing their pension until they take benefits. A phased retirement option is also available which splits the pension fund into 100,000 segments. Some segments can be used to provide an income while the rest remain invested.
This plan may be attractive to people who can afford to delay annuity purchase while annuity rates are low. Wealthier people who want to pass on their pension money to relatives may be interested in this plan, but the introduction of the Challenger open annuity product means that they can do this without having to go into income drawdown.