The Flexi Access Drawdown Hub - All you need to know about flexi access drawdown
What is flexi access drawdown?
Flexi Access Drawdown is a new retirement solution available to anyone with money purchase pension funds. Introduced in April 2015, it provides unrestricted access to your pension money to draw tax free cash and taxable income as and when you choose.
Many people have multiple pensions and it might be beneficial to consolidate these funds into one pension to access these new benefits.
Anyone with old style pensions, defined benefit or a pension with protected or safeguarded benefits can access flexi access drawdown. You would need to transfer out of your pension scheme in the first instance.
All of the above require either pension or specialist pension advice. This something we offer, so please contact us as we will provide information as to whether you require advice and can provide that advice should it be required.
Benefits and drawbacks
Below are the positive and negative aspects of flexi access drawdown.
- flexibility for lump sums and income
- ongoing investment
- flexible benefits for beneficiaries
- investment returns may not support your income levels or empty your pension pot
- high income withdrawals could result in your fund being depleted and you would have to rely on other income sources
Key rules of the new flexi access drawdown
For new flexi-access drawdown arrangements set up from 6 April 2015, the main conditions are:
- Pension benefits can be taken from age 55. The only exceptions are where a lower protected pension age applies or if benefits are being taken at any age though ill-health.
- No minimum income requirement – anyone can access flexi access drawdown. This can be either be through your current pension provider (should they offer it) or through a new pension. Transferring the funds is very straight forward.
- A tax-free lump sum of multiple tax free lump sums can be paid with the balance going into drawdown. Income withdrawals of any amount can be taken at any time from the drawdown fund. Unlike the old drawdown there are no income reviews or GAD limits. Income taken is taxed at a person’s marginal rate.
- If income is taken this triggers the money purchase annual allowance (MPAA) test. This means a maximum of £10,000 per year can be paid into a pension in the future. Particular care needs to be taken if you are using your flexi access drawdown and still working or employed and have contributions going into a pension.
- If someone dies before age 75 with remaining flexi-access drawdown funds, any lump sum, or income payments to beneficiaries, are paid tax-free.
- If someone dies on or after age 75 with remaining flexi-access drawdown funds, any lump sum is taxed at 45% (or, for payments made on or after 6 April 2016, at the recipient’s marginal rate). Any income payments made to beneficiaries are taxed at the recipient’s marginal rate.
- Flexi-access drawdown is available to beneficiaries, including dependants, nominees and successors.
Take our full retirement journey and submit an initial enquiry at the end of the journey.
Contact us on 02920 451311 to talk through your options. We have a copy of your retirement report so will be able to answer any questions and help implement your retirement decisions.
Should you feel uncertain about your retirement options and need advice about your existing pensions, please contact us on 02920 451311 and we will help you step by step to ensure you get the most suitable advice for you and your family.
What happens when you die?
If you die before you take anything from your pension:
- If you die before age 75, your pension can be paid to your beneficiaries tax-free (as long as it is less than the lifetime allowance: £1.25million in tax year 2015/16, £1 million is 2016/17), either as a lump sum, an annuity, or through flexi access drawdown.
- If you die age 75 or older, your pension can be paid as a lump sum which will initially be taxed at 45%, or your beneficiaries can use flexi access drawdown and will then only pay tax at their marginal rate.
- There will normally be no inheritance tax to pay.
If you have taken money from your pension pot to invest in flexi access drawdown
If you die before age 75, your spouse, partner, dependant or beneficiary can:
- Stay in the flexi access drawdown plan and take income tax-free.
- Take the pension as a lump sum tax-free.
- Buy an annuity, where income will be paid tax-free.
If you die after age 75, your spouse, partner, dependant or beneficiary can:
- Stay in the flexi access drawdown plan and take income subject to tax at their marginal rate.
- Take the pension as a lump sum which will be taxed at 45%.
- Buy an annuity, where income will be subject to tax at their marginal rate.
More information is available on the HMRC website.
Tax can be complex and depending on your retirement options and overall income you could be taxed in a number of ways. Typically you will be able to withdraw 25% of the fund as a tax free lump sum, with any further withdrawal being classed as taxable income on top of any other earnings during that financial year.
Please feel free to contact us on 02920 451311 to discuss your tax position in more detail.