What is Flexi-Access Drawdown?
Under flexi-access drawdown you can take as much income as you like from your pension fund at any time. Any income taken in excess of your tax-free entitlement will be taxed at your marginal income tax rate. (This means the pension income you withdraw is added to any other income you receive in the same tax year and the tax is calculated and deducted under PAYE based on the tax coding notice issued by HMRC for your drawdown plan.)
How long the pension fund lasts depends on how much income you take out – and how well the investments perform. Care needs to be taken in terms of tax planning and sustainability of income.
Large withdrawals could mean paying unnecessary tax (for example taking you into a higher tax bracket in that year) and will naturally reduce the amount available to provide an income in the future. Conversely, taking small amounts of income could mean compromising your retirement standard of living unnecessarily.
Any money left in your pension pot when you die can be passed on to your dependants or chosen nominee. See below for more details.
Flexi-access drawdown requires regular monitoring and reviews to check it remains suitable in relation to changes in your personal circumstances, short and long term needs and changes in the markets.
You can buy an annuity or cash-in part or your entire flexi-access drawdown plan at any time in the future.
Drawdown by its very nature requires the investor to take on some risk and therefore it is not a solution that will suit everyone. By taking on the required risks, you can benefit from more flexibility in terms of how you take your ongoing income, how your pension fund continues to be invested and more favourable death benefits.
As you get older, drawdown naturally becomes less sustainable and suitable. Drawdown ‘exit strategies’ should normally be considered between the ages of 75 and 85. This could be simply switching to a conventional annuity, or a flexible annuity, or more likely a phased transition over a period of years, taking advantage of favourable market conditions when these arise.
If you have over £50,000 in pension funds we would recommend you take specialist advice on all of the available options to find the best solution for your circumstances.
If flexi-access drawdown is the best solution for your retirement income, we will:
- Analyse your circumstances, income requirements and develop a retirement strategy
- Invest your pension fund to maximise income and meet your needs
- Facilitate any tax-free cash payments and set up your regular income
- Review your circumstances annually and update your strategy
- Facilitate phased flexible drawdown where appropriate
- Develop a drawdown exit strategy in later retirement to suit your own particular needs