Drawdown

Drawdown is a structure which overlays our trust-based pensions schemes, enabling the fund to be withdrawn as a monthly pension on a measured basis.

Our drawdown product is a special arrangement made under the Balley Chashtal No 2 Personal Pension Plan. Drawdown rates vary with age and are calculated on the basis of actuarial advice from Boal & Co Limited, the actuaries to the scheme.

The rate of drawdown is normally re-assessed every 3 years and the resulting pension will be re-based at that time. The conclusion of this review will generally result in a pension increase or decrease, depending on the interest rates at the time. The amount of pension is therefore not guaranteed for life (unlike an annuity).

Drawdown can operate either on a single life basis (where the rate of drawdown aims to exhaust the member's fund over his/her expected lifetime, according to standard actuarial tables) or on a married basis (where the pension aims to continue, with a one-third reduction after the death of the member). In the case of a married life drawdown, rates assume that a wife is 5 years younger than her husband.

The flexibility of the Balley Chashtal drawdown arrangement is that the member does not have to drawdown the full pension amount. The member can elect to drawdown at a lower rate, subject to the consent of the Trustee.

An important benefit of the Balley Chashtal drawdown arrangement is that funds remaining on death will be distributed to the member's estate/nominated beneficiary, less tax at the applicable Isle of Man rate (currently 7.5%) This is a major difference when compared with pension annuities.

A wider comparison of the Balley Chashtal drawdown arrangement with pension annuities is outlined in the table below.

	Balley Chashtal drawdown arrangement	Pension Annuity
Pension Amount	Variable	Fixed
Capital Distribution on Death		1
Pension rate depends on:
- Age
- Health		2
- Bond Yields
- Interest Rates
Pension Options
- Single/Joint Life	3
- Increasing Pension	4
Current Rate5 - Male 65, Level £ pension pa per £30,000	£2,271 pa	£2,197 pa

1. Only if death occurs during initial 5 or 10 years, when selected.
2. Only for enhanced/impaired life annuities
3. Joint Life assumes a fixed 5 year age difference.
4. Only if interest rates subsequently rise.
5. Recommended drawdown rate as at 1 April 2008.

If the member survives beyond normal life expectancy, the drawdown arrangement is likely to give a worse result than a traditional annuity. This is because annuity rates are based on a cross-subsidy, where members dying young subsidise the pensions of members dying at very old age.

In contrast for members dying before or at the normal life expectancy, the Balley Chashtal drawdown arrangement can provide the possibility of a significant financial uplift.

Download the Drawdown Brochure