Flexible drawdown

Flexible drawdown in its basic form is very simple, it is the option to take unlimited, but taxable withdrawals from a pension from age 55. BUT to qualify you must have a guaranteed pension income of £20,000, the  "Minimum Income Requirement".

Minimum income requirement:

• the minimum level of income to qualify for flexible drawdown is £20,000 per year of pension income.

• the pension income must be in payment

• the pension must be guaranteed

• other drawdown income does not apply

• investment linked annuities don't count except for guaranteed elements

• typically the income will be state pensions, final salary pensions and annuities

Key points

If you're 55 or above, and you meet the minimum income requirement, you can then enter flexible drawdown (see options if you don't qualify for flexible drawdown):

• the fund can then be withdrawn in its entirety or in part withdrawals. Please note protected rights cannot be taken this way until April 2012.

• withdrawals are subject to tax at your highest rate, so it may make sense to make withdrawals over a number of years to manage income tax

• once in flexible drawdown you cannot contribute to a pension or be an active member of a final salary scheme

• for some people flexible drawdown could be a very short contract, money in and money out

• some people might hold it as a long term contract, but with the added flexibility of higher withdrawals when required

The advantages of flexible drawdown

• the tax-free lump sum can be taken

• flexible drawdown allows income to be varied with no maximum

• you don’t have to decide on whether to include spouse’s benefits or other such options with a flexible drawdown contract

• the fund or part of it can remain invested so it could grow further

• you can take the entire fund in one go

• any part of the fund left invested could be paid out in the event of death

There are of course disadvantages to a flexible drawdown plan:

• any ongoing income/or fund left invested is not guaranteed and could go down

• withdrawals are subject to tax

• costs can be high especially for smaller funds

• where do you invest money withdrawn that is not spent, in a pension it is tax efficient?

• funds taken out could be subject to income tax and if not spent potentially inheritance tax

• some pensions have guaranteed benefits which would be lost

If you want to know more about flexible drawdown and how it could work for you then:

 Find out more about:

flexible drawdown and final salary schemes

flexible drawdown options (how to do it)

don't qualify for flexible drawdown

flexible drawdown and avcs

The guidance and/ or advice contained in this website is subject to UK regulatory regime and is therefore restricted to consumers based in the UK. Pensions and Annuities Ltd is authorised and regulated by the Financial Services Authority under reference 494480. Registered Office: Chelworth Industrial Estate, Cricklade, Swindon, SN6 6HE.
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