An Income Drawdown Fund is a contractual agreement between you and an insurance company. Here, you deposit a lump-sum payment(s), and in exchange, draw a regular income from the deposit(s) you made into this retirement fund.
The balance that remains in your account continues to get invested. This is not to be confused with an annuity which gives you guaranteed payouts for the rest of your life, or for an agreed period of time.
In an income drawdown, you determine how and when you want to be paid as your periodical income, unlike an annuity where the amount is predetermined and based on the amount you wish to invest. Also, the amount you are paid out periodically depends on the performance of the markets where your money was invested. This depends on the amount you choose to take out on each periodic withdrawal, and your lifespan.
You have the liberty to determine the frequency of withdrawal (monthly, quarterly, half yearly or annually), the timing of payment (end of month or on a specific date) as well as the amount per withdrawal. The fund also allows you to withdraw a larger portion of your money, for instance if you require funds for an emergency. This is aside from the scheduled payment structure you selected and is limited to three times in a year.
The fund gives you the option to top up at future dates or defer receipt of regular income to a later date, if you don’t need it at the time.
According to the Insurance Act, an Income DrawDown minimum period is 10 years. This means although you are able to draw income immediately, you are required, by law, to stay in the fund for at least 10 years.
If your still have a balance in your account after the mandatory 10 years from the date of commencement of the drawdown, you have these three options:
The amount of income you can draw from your fund is subject to legally allowed limits. The law allows you to withdraw an income subject to a maximum of 15% per annum of your outstanding account balance.
The Income Drawdown Fund is registered and regulated by both Retirement Benefits Authority (RBA) and Kenya Revenue Authority (KRA). We provide you with access to your statements to show performance of your investment.
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The funds moved from a retirement saving scheme to start an Income Drawdown plan are tax exempt. However, this benefit is not available when one decides to take their retirement benefits as a lump sum.
You continue to enjoy investment income while still drawing from your funds. Your fund earns a minimum guaranteed interest of 4% per annum. At the end of the year, you also receive a bonus interest amount over and above the guaranteed 4% depending on market performance. For the insurance sector, this usually ranges from 4%-8% per annum.
As much as the Income DrawDown minimum period is 10 years, to mitigate the risk of outliving the fund/investment you may purchase an annuity at the point you deem appropriate, even before the end of the 10 year period.
The amount you put into an income DrawDown is guaranteed an interest of 4% per annum meaning, you cannot lose your initial investment (capital).
ICEA LION Life Assurance Company Limited, the approved issuer (founder) of the Income Drawdown Fund is a leading East African Insurer meaning that your investment is managed by expert insurance & investment professionals.
In the unfortunate event of the demise of a pensioner, the fund can be used to provide a source of income to the nominated beneficiaries either by continuation of income drawdown arrangement or purchase of an annuity. Alternatively, if they opt out of these two, then the balance will be paid to the nominated beneficiaries as a lump-sum.