Question

Explain how an account based pension could be used as a retirement income drawdown strategy.

Answer 1

Solution:

The use of account based pension in the form of drawdown strategy is possible for the people that are younger than the age of sixty five and have already taken decision to withdraw income in the form of pension between 4 percent and 10 percent of the balance present in the pension account every year. Under this arrangement people are not allowed to withdraw money in lump sum amount.

There are certain advantages and disadvantages associated with this strategy. The advantages are supplementing income from employment, less tax liability on the income, early retirements. The disadvantage of this strategy is less amount of money available at the time of retirement.