Under the new pension legislation everyone has the option to choose the level of income they can withdraw from their pension. Previously proof of a secured yearly income of at least £12,000 was required before the freedoms were granted.
Since April 2015 everyone has been eligible for Flexible Drawdown, which allows you to take out an income that isn’t restricted by GAD Rates. This means that people are able to take out an income to suit their circumstances and can even strip out the whole of the fund if that is what they wish, although there are risks associated with this. These risks are outlined in the pros and cons table.
John is 61 and has a pension pot of £210,000. He has decided to enter drawdown as he sees it as an ideal way to control the income he receives while limiting the taxation he pays.
John doesn’t want much income this year as he has retired half way through the tax year and wants to avoid breaking through the high tax rate threshold. So he opts to withdraw £3,000 to spend on a holiday.
However the following year he is planning on withdrawing £25,000 and due to him being retired will be using this as his main source of income. As it will be a new tax year he doesn’t have to worry about the top tax bracket.
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