It's important to understand that income drawdown is not something that you set up or get advice on once and then forget about.
Your investments need regular monitoring (at least once a year) to ensure the right balance of capital growth and income is being maintained to produce the level of income you need now and in the future. If stock markets fall or specific funds perform poorly corrective action will need to be taken. This may involve switching funds or, in extreme cases, drawdown providers.
Also, as your needs change later in life, it may make sense to adjust how your money is invested to provide you with more security. This may include switching to products that offer a guaranteed income, such as annuities.
Unless you are a financial expert, managing your income drawdown investments is not something to take on yourself: a financial adviser will offer all of the above as part of their service.
Switching drawdown providers
If you buy an annuity, that's it – there is no changing your mind or your provider. However, with income drawdown it is possible to switch to a new provider if you need to. However, be warned, this is likely to be costly and therefore not to be done lightly.
The actual 'transfer' of your funds could take several weeks which means your money may not be invested during that time. You may also have to cash in some or all of the funds you hold and buy new funds with your new provider (unless direct transfer is available). There may also be exit charges from your existing provider.
So, while switching providers is possible, it’s not something to be considered unless you feel you are really paying over the odds on charges or receiving really bad performance. Better to get it right the first time – which is why taking financial advice from a professional who can help you with this complex choice, may save you money in the long run.
If you're already in 'capped' income drawdown
If you're already taking income from an existing 'capped drawdown' fund (closed for new applicants) and you withdraw more income than is allowed by the drawdown 'cap' then you are considered going forward to be in 'Flexi-access drawdown'. You can't change your mind and go back into capped drawdown once you exceed the cap and the tax relief you can get on future defined contribution savings is reduced – see the later section on Tax to understand more.