What is 'income drawdown'?

Instead of buying an annuity it is possible to withdraw income directly from your fund – although you pay tax on it, unlike the tax-free lump sum you can take in one go.

You can only do this until you are 75. You must then use it to buy an annuity.

The tax authorities limit how much you can take each year in income drawdown – it's roughly the amount you would get from a single person's level annuity.

The rules have now been simplified in 2006, but income drawdown is risky, and you must take regular advice. It is generally considered suitable only for people with at least £100,000 in their pension fund, and probably £250,000 if you do not have any other sources of income or major assets.

For more information download The FSA guide to annuities and income withdrawal.