Our pensions could prove invaluable to helping us enjoy the retirement of our dreams, but there are times throughout our lives when expensive purchases or other financial commitments mean we need money straight away, without having the luxury of waiting until retirement age. If you’ve been paying into a pension fund to safeguard your financial future, you could protect your savings as well as benefit from the interest gained with income drawdown.

There are many things that might require a large investment, such as buying a new house or car, and if your pension fund is sitting there untouched, it makes financial sense to dip in and borrow some of your savings for more immediate concerns, making income drawdown the ideal option for those looking to protect their valuable investments. Some types of pension fund won’t allow withdrawals until you reach the retirement age set on the policy, otherwise you must be at least 55-years-old.

Income drawdown puts control of your pension entirely within your own hands, allowing you to draw a regular income from your savings – including up to 25 per cent as a tax-free lump sum. There is also usually no minimum withdrawal amount, meaning that you will never be obliged to take funds from your pension if you choose not to.

Income drawdown pensions may not be suitable for everybody however, and you will need to prove your financial security and attitudes towards saving to be considered suitable for this investment option. Your pension fund should not be viewed as an alternative to your regular income, or a source to be drawn from excessively to the point of depletion, as this could have serious consequences when it comes time to rely on your pension later in life.

For this reason, your income drawdown plan will be reviewed every few years to ensure it’s still the most suitable option for you, and there are some limits on withdrawal amounts that could deplete your fund too severely.

Reducing your fund by too much could impact on your ability to earn capital in the future.

That’s not to say that pensions should lie untouched throughout your entire working life, especially if you’re a careful saver ensuring that there will be more than enough money to go around. As well as being the ideal way to save for your retirement, pensions also represent one of the most effective means of saving available, usually offering a much higher rate of return than other types of savings accounts – especially if your employer matches your monthly contributions.

The author of this article is a part of a digital blogging team who work with brands like Standardlife. The content contained in this article is for information purposes only and should not be used to make any financial decisions.

Isla is a part of the digital blogging team at cashzilla.co.uk who work with brands like Standard Life. For more information about me, or to keep up to date with the latest in finance news, check out my posts at cashzilla.co.uk or visit my Twitter account, @cashzilla.

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