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Flexi-Access Drawdown

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.

How does Flexible Drawdown work?

Flexible Drawdown
Tax Free Lump Sum Available (Maximum of 25%)
Variable Income (No Upper Limit)
Flexibility to take just the lump sum and no income if you wish.
The fund remains in a favorable tax environment.
The fund remains invested – it could grow further, but could also go down.
Ongoing monitoring is required.
Charges for flexible drawdowns are higher than an annuity purchase.

Pros

  • Ability to choose an income to suit your personal circumstances without limits.
  • The 55% tax rate which used to apply on death to inherited Drawdown pension pots has now been axed.
  • Flexibility to strip out a pension entirely or use it to receive a regular income.

Cons

  • Money taken from a pension is taxed as income; so if you take a large chunk out, or if you’re still working, you could find yourself pushed into an higher-rate tax bracket.
  • If you prematurely empty your retirement savings, you could be forced to fall back onto the State Pension.
  • Taking an income from a Drawdown product will result in a reduction to annual allowance.