![]() ![]() This helps ensure a greater degree of certainty concerning pension fund assets and potential payments in the future. Many people tend to take a more cautious approach to their investment strategy in later life. However, prompted by a long-term reduction in annuity rates, the flexi-drawdown income option allows remaining funds to be invested for the long term. When annuity rates were much higher, this made perfect sense for many people, long-term income with no risk to capital. In the old days, acquiring a pension annuity guaranteed a fixed income for the rest of your life. However, additional funds via your pension scheme will be available as and when required. As more people now work longer, it may serve you best to delay taking your pension while receiving working income. Whether looking at lump sum tax-free payments, staggered payments or discretionary income payments, you are in complete control of the timing once you qualify for your pension. Pros of flexi-drawdown pension paymentsįirstly, we will look at the pros of flexi-drawdown pension payments: Timing of payments However, there are some pros and cons to consider. The flexible nature of this new type of pension payment has been appreciated by many. Pros and cons of flexi-drawdown pension payments The discretionary nature of these payments may help to avoid moving through upper tax rate thresholds in any one tax year. Note that any discretionary payments beyond the tax-free lump sum limit will be added to your annual income with the appropriate rate of tax charged. The idea of the pension flexi-drawdown option is that remaining funds can be reinvested for the long term, with potential for further capital growth. However, this does not stop you from making additional withdrawals. Many people prefer to set up regular pension income direct debits. Discretionary paymentsĭue to the nature of the pension flexi-drawdown arrangement, you can decide to withdraw funds in the future, as and when required. As long as the payments remain within the 25% limit, there will be no tax charge. Instead, you can stagger the tax-free lump sum payment over time. It is worth noting that you don’t need to take the 25% tax-free lump sum in its entirety. For many people, this is the first stage of a flexi-drawdown pension arrangement. This equates to a maximum of 25% of your pension fund on which there will be no tax payable on receipt. When you become eligible to withdraw funds from your pension scheme, you will have the option to take what is known as a tax-free lump sum. There are two different types of pension income to consider which are: Tax-free lump sum Whether you decide to withdraw funds from your pension arrangement at the earliest opportunity or defer payment until a later date, this is your choice. Withdrawing funds under a flexi-drawdown arrangement However, upon retirement, you can acquire an annuity, defer your pension or activate the flexi-drawdown pension option. These are schemes in which you contribute with no absolute guaranteed value. You may need to revert to the terms of your pension fund and how it is managed to clarify your situation.Ī flexi-drawdown pension arrangement is only applicable to defined contribution pension schemes, otherwise known as money purchase. To qualify for flexi-drawdown, you must be aged 55 or over. There are several conditions to consider, which include: Age ![]() It is essential to realise that not all pension schemes will qualify for a flexi-drawdown pension. Do all pension schemes qualify for a flexi-drawdown pension arrangement? However, there was also a subtle withdraw from the historic annuity link after rates sank to all-time lows. The pension regulations announced in April 2015 meant greater flexibility for pension fund holders going forward. The idea was simple, as you were already in receipt of more than £1000 a month pension income, you could tap into the additional funds as and when required. To utilise the flexible drawdown option, you would have to receive a pension income of at least £12,000 a year from other sources. Many people confuse the flexible drawdown option with the flexi-drawdown option these are very different. Under regulations at the time, the maximum annual income you could withdraw was no more than 150% of what you would have received if you had bought an annuity. However, the level of withdrawals was capped. There was a degree of flexibility with capped drawdowns regarding when and what you could withdraw from your pension. ![]()
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