Flexible Drawdown Pensions
Flexible drawdown pension schemes have become increasingly popular due to the way pensions have changed. These days, people expect a certain amount of flexibility when it comes to saving into and accessing their pension pot. Working into your 60s (and beyond) is no longer uncommon.
In this article, we take a look at how flexible drawdown pension plans work, if they’re right for you, and how to go about getting one.
Fortunately, the advisors we work with are experts when it comes to pension drawdown and they will be able to offer the right advice.
Call us on 0808 189 0463 or make an enquiry and an expert will contact you shortly.
What is a flexible drawdown pension?
Drawdown is the process in which you can ‘drawdown’ the funds from your pension pot once you reach an eligible retirement age (usually 55, sometimes sooner if you have a qualifying health condition).
Like with other types of pension, 25% of your flexible drawdown pot is tax-free, and the rest will count as income and is therefore taxable. Before you withdraw, you can typically get tax relief on defined contribution pensions of up to £40,000. This is classed as an annual allowance.
If you want to start drawing income from your pension, you will reduce the amount of tax relief you get on any funds you put in after that. This is called a money purchase annual allowance (MPAA) and if you still want an income from your flexi-access drawdown pension, you may want to consider what age you want to start accessing this income.
How does a flexible drawdown pension work?
‘Flexible’ pension drawdown (sometimes referred to as ‘Flexi-access’) refers to the fact that you can draw down as much of your pot as you like.
For example, with a Flexi-access drawdown pension, you could take the entire balance in one go, or decide to take it down in various stages as phased income drawdown.
What are the rules of pensions with flexible drawdown?
There are no rules stipulating that you legally must seek advice before entering drawdown, but there are some rules against you directly drawing down from a defined benefit scheme, and some providers will set limits on how many times you can withdraw per year.
It’s always best to seek advice from an expert before making a big financial decision. Make an enquiry today and we will match you with an expert who can talk about the specifics of flexible drawdown pensions to help you make an informed decision.
Is there a Flexi-access drawdown income limit?
No, there is no maximum amount that can be drawn down out each year.
Your initial 25% of your pension pot is still tax-free, though bear in mind that the rest of your pension will be taxed as income. To save money, you may want to seek professional advice to see how to manage your funds in the most effective way.
There used to be a cap on drawdown before the Pension Freedoms act was introduced in 2015, but after this all-new income drawdown arrangements are Flexi-access.
If you took out a capped drawdown pension plan before 2015, you can either choose to convert it to a flex-drawdown or keep the cap in place.
What flexible income drawdown products are available?
Pension schemes with drawdown features can be tightly defined and regulated, but there are some differences between each product.
These differences mainly come down to the provider you go with, though for the best deal, speak with one of the experts we work with. They have access to the whole financial market and will be able to find products that the public aren’t typically able to see.
How do I find the best flexible drawdown pension, providers?
Finding the best flexible income drawdown provider for you is largely a matter of finding the fund (or funds) best suited to your unique circumstances.
If you’re not exactly sure what this might entail, consider taking the advice of a pension expert. They can help you to pick the plan that is most suited to your requirements.
Still, regardless of the kind of plan you need, one of the most important things to keep in mind when comparing pension providers offering flexible drawdown are the fees.
Ideally, you want to choose a plan that meets your criteria, whilst incurring as few charges as possible. But to avoid all the legwork, let one of the experts we work with do this for you. Make an enquiry today.
Does a flexible drawdown pension incur charges?
Unfortunately, most flexi-access drawdown pension schemes will incur charges, and excessive charges can erode the value of your pension pot.
It’s not all bad news, though. Choosing the right flexi-access drawdown pension provider can help to keep your costs down, whilst balancing your risk/reward tolerance.
Here are some of the charges to look out for when considering a flexible income drawdown provider:
- Set up fees: Some providers charge an initial fee to see up flexible income drawdown while others don’t.
- Annual management fees: Many actively managed funds will charge a certain amount to manage your money. You could think of this as a fee you pay for the service for an expert.
- Withdrawing money: Other providers may charge you to withdraw money, or charge you if you withdraw more than a certain number of times each year.
- Changing how much you want to draw down: Some providers will charge admin fees if you wish to adjust the amount of money you regularly take out.
- Buying or selling: Some providers will charge you transaction fees for rebalancing the investments within your pension.
Tax on a flexible drawdown pension
As we’ve already touched on, 25% of your pot is tax-free, and the rest is taxable. Any income you take will be added to your taxable income for the current fiscal year.
What’s the best flexible drawdown pension for me?
Everyone’s circumstances are different and, as such, there isn’t one plan that is best suited for all of us.
Drawdown pensions are particularly complex and unless you’re 100% happy doing it all yourself, it’s best to seek the expert guidance of a professional advisor.
Make an enquiry today and we will put you in touch with someone.
Where can I find a flexible drawdown pension calculator?
For a very rough estimate of what you could get from a flexible pension drawdown, you can use the calculator from Pension Wise.
Bear in mind that this calculator cannot give you an accurate figure as it does not take into consideration your personal needs or circumstances. It also does not flat up incoming rates changes or any other additional fees.
This is why speaking to one of the pensions experts we work with is a better option. They can calculate your rates for you, put this data into perspective and offer bespoke advice for your retirement plans.
Make an enquiry to speak with someone today.
How can expert advice help with my flexible drawdown pension?
A great many people choose to take professional advice before drawing down their pension, and for good reason.
One of the expert advisors we work with can help you to tailor a plan that best matches your risk appetite and income requirements, along with providing a sense of reassurance and hands-on support that the ‘DIY’ approach just can’t provide.
They can help you fully explore your options (including alternatives to drawdown), whilst keeping you up to date on changes to legislation and the market.
Speak to a drawdown pensions expert today
If you have questions and want to speak to an expert for the right advice, call us today on 0808 189 0463 or make an enquiry online.
Then sit back and let us do all the hard work in finding the pensions expert with the right expertise for your circumstances. We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.