Updated: September 04, 2019

Pension Flexibility

This article provides key information about flexible pension plans, their potential benefits and more. Speak to an expert advisor we work with for more guidance.

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Tony Stevens

Author: Tony Stevens - Finance Expert

Updated: September 04, 2019

Pension flexibility was introduced in 2015 to help give people more options with regards to their pension savings and has overall been considered a positive change. However, because flexible access pensions are still a relatively new way to enjoy your retirement savings, many people may opt to have some guidance to ensure they’re making the most of their pension pot and pension tax efficiencies for their remaining savings.

There’s more to pension flexibility than the ability to take a 25% tax-free lump sum once you reach 55. This article provides key information about flexible pension plans, their potential benefits and more.

You’ll find the following topics covered below…

What is pension flexibility?

Pension flexibility, often referred to as Pension Freedoms, was introduced to help people with pension savings accounts to be able to access those savings in a more flexible way. Previously, defined benefit pensions were only accessible to retirees through the purchase of an annuity.

Thanks to the “pensions freedoms” reforms introduced in 2015, pension savings holders are now able to enjoy their pension savings in a way that best suits them. One of the changes is the ability to take up to a 25% tax-free lump sum from your pension savings once you reach the age of 55.

However, there are other flexible options to help people enjoy their pension pot, including a setting up a personal pension. It’s still possible to buy an annuity with your entire pension pot, but it’s not essential. You can arrange a pension income drawdown with a more flexible plan to suit your needs or choose a combination of both.

If you have any questions about pension flexibility of want to know which plan is right for you, speak with an expert. They can answer all your questions about flexible access personal pensions and help you plan the right way for your to enjoy your pension savings during retirement.

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Pension flexibility in 2020

While the rules on flexible pensions in the UK haven’t really changed between 2015 and 2020, what has changed is how much information and help is now available.

The UK Government has introduced a new service called PensionWise to act as an online guide and help people more easily find out about pension flexibility and how to plan for their future. They also encourage other services to provide information, support and advice to help people make the best decisions for their retirement using flexible pension options.

Indeed, regular data collection on pension activity show that the flexible pension options remain popular. In July last year, £2.75 billion was withdrawn from pensions flexibly, a 21% increase from a year earlier.

In addition, people with a defined benefit pension worth £30,000 or more are legally required to take advice from a qualified advisor if they’re moving to a defined contribution scheme. This is to ensure they understand the decision they are making and that they make the right choice within the new flexible pension rules, for their future.

What flexible options are there?

As we have already detailed, one of the flexible pension options that are now open to pension savers is the ability to take up to 25% of your total pension pot, tax-free, at the age of 55 or over.

Other ways you may be able to access your pension pot more flexibly include:

  • You don’t have to take a lump sum and can simply begin drawing an income from your pension once you reach 55. Specifically, this means that many people are able to access their pension earlier and even while they are still working.
  • Not touching your pension pot until you decide, which could be when you choose to retire fully some years after your 55th birthday. Fund will remain invested and are therefore likely to grow. Once you buy an annuity this will not be the case.
  • Withdraw a number of small cash sums, provided they total less than 25% to retain the tax-free position.
  • Buy an annuity for a guaranteed lifetime income, which you can begin receiving while you’re still working.
  • If you do take a tax-free cash sum, reinvest the remaining pot and take a tax-free retirement income from that in the future.

These options can provide useful financial support for people who might want to reduce their working hours to enjoy other hobbies or spend time with family. Or, if you just wish to begin drawing from the pension you’ve saved hard to grow throughout your working life.

However, it’s important to keep in mind that not every pension scheme permits all of the flexible options we’ve described above (this is especially true of schemes set up before 2015). Each scheme has its own rules and even though the government increased pension flexibilities, the rules of your pension may be a little different.

If you’re unsure of what flexible benefits, including access and payments your pension permits it can be helpful to speak with an experienced pension advisor, like those we work with.

They can answer your questions about pension flexibility and help you plan your retirement and pension in the right way for your needs, while ensuring you remain within the rules.

What is flexible pension payment?

Also known as flexi access drawdown, a flexible pension payment is where you can take payments from your pension pot in a flexible way, to suit you, once you reach the age of 55.

However, even though you can take flexible pension payments to suit your needs, it’s always important to consider your retirement over the longer term. Yes, it’s great to have a big lump sum to enjoy how you want to. It’s also important to have a big enough pension pot that will ensure you can enjoy a comfortable retirement for as long as you need it.

With enough thought and planning, pension flexibility means you can achieve the right balance between enjoying your pension savings while your still active enough to do so, while also still having enough to have a comfortable retirement.

What are the pros and cons of pension flexibility?

Among the pros of a flexible approach to pension drawdown are:

  • You can take a tax-free lump sum from your pension pot from the age of 55.
  • You can vary your income from your total pot.
  • You can leave the remainder of your pot invested to ensure it keeps growing even though you’re already drawing from it.
  • You can take unlimited amounts from your pension, although there will be tax implications if you exceed the 25% lump sum limit and the annual basic rate taxpayer limits on income.
  • You don’t have to buy an annuity.
  • You can select the best death benefits for your needs, though keep in mind that many older pensions do not have provision to pay the remaining pot to beneficiaries at death

There are also some potential cons relating to pension flexibility that you may wish to consider:

  • Even if you leave your pension invested, future returns aren’t guaranteed.
  • If you make a number of withdrawals or opt for a high income over a short period of time, there will likely be tax implications and your pension pot may not be large enough to cover those withdrawals and income for the entirety of your retirement.
  • If you work with an advisor, they will produce ‘Cashflow Forecasting’ to try to ensure you don’t run out of cash and make sure the investments are performing well
  • While more flexibility is great, the more choices you make, the more costs are likely to be involved.
  • The level of income you opt for may need to change if the future performance of your pension investments deteriorates.

As you can see, the potential drawbacks of flexible access pensions require that you think very carefully about how you use your pension pot. If you do choose to withdraw a cash lump sum or a regular income from an earlier age, it’s important to consider the implications of that for your total pension pot for the remainder of your retirement; you want to know you have a good income to support you during your lifetime.

Flexible pension providers

If you’re interested in opening a flexible pension account for yourself, but are unsure of which provider can give you the flexible pension options you want, then we would always advise you to speak with an experienced pension advisor like those we work with.

However, to give you some idea of which providers offer flexible pensions, we’ve listed a few below.

Aegon

While Aegon’s flexible pension plan is no longer open to new retirement savers, Aegon continues to offer a variety of pension plans with flexible drawdown access. With specific flexible pension accounts from Aegon, fewer charges apply compared with other options where you can add flexible pension benefits, such as flexi-access drawdown on your personal pension.

Aegon Retirement Choices mean that you have a choice of pension funds and accounts to open or join to ensure you make the right decisions for your pension planning. To see if a Aegon flexible pension account is right for your needs, speak with an advisor.

Aviva

Aviva offers flexi drawdown access personal pension plans that also give you the option to change your mind about certain aspects of how you drawdown your pension. With the right pension planning, you can make good use of Aviva’s flexible pension and enjoy a comfortable retirement while also taking advantage of the savings you’ve built up during your working life.

Standard Life

Standard Life’s flexible drawdown pension options include the Standard Life KPMG Flexible Retirement Growth Pension Fund and provides all the flexible pension options you want from a flexible pension. However, as with other flexi-access pensions, there is no guaranteed lifetime income. But, with the right planning, you can ensure you’ll be able to enjoy your pension pot for as long as you need to.

Legal and General

Like with the other providers mentioned, their flexible pension allows you to take advantage of the pension freedoms that were introduced in 2015 to give you more control over the way you use your retirement savings.

LV

LV flexible pension options include the flexible drawdown pension and a flexible guarantee cautious pension. They both offer access to the flexible drawdown you may be looking for, but with the cautious option you may feel more reassured that your pension will continue to grow during your retirement, allowing you continue taking an income from your pension, for longer.

Scottish Widows

Scottish Widows’ flexible drawdown pension product is similar to others as it offers the flexibility you want from your pension savings while allowing it to remain invested, even as you take an income from it.

Other flexible pension providers

  • The People’s Pension flexi access drawdown pension
  • Clarks flexible pension scheme
  • Just retirement flexible pension plan
  • South Yorkshire flexible drawdown pensions
  • Strathclyde flexible retirement pension fund

In addition to that, both the Pension Trust and Pension Wise offer support and advice for your flexible retirement pension plan.

However, while the online advice provided can be useful, the sites may not be able to answer all your questions about flexible pension planning. In addition, they may not be able to help you create the right flexible pension plan for your needs.

That’s where experienced pension advisors like those we work with can prove very useful. They can answer all your questions, give you details on all the flexible access pension providers and their accounts and help you plan your pension to suit your specific needs. Make an enquiry to get started.

Speak with a pensions expert

If you’re interested in finding out more about flexible personal pensions to take advantage of gaining more control of your retirement savings, speak with an expert.

They can answer all your questions relating to flexible access, pension drawdown and planning your flexible pension pot to remain tax efficient while providing you with the income you need throughout your retirement.

Get in touch on 0808 189 0463 or fill in our online enquiry form. Then you can sit back and relax while we do the hard work of connecting you with the right pensions expert for your needs. We don’t charge a fee to introduce you and there’s no obligation.

FAQs

Can I get flexible benefits from my NHS pension?

Yes. You can read more on this in our guide to NHS pension drawdown.

Do teachers pensions schemes provide flexible benefits for retirement?

Yes, in most cases it is now possible to have flexible access to your teacher pension scheme to plan for your retirement.

Can I get a flexible private pension?

Again, the answer to this question is a resounding yes. We have included some examples of private flexible pension providers above.

Does pension flexibility include death benefits?

If planning the right death benefits is important to you, there’s no need to worry as pension flexibilities mean that there are many flexi-access options relating to death benefits.

What about tax?

It’s still possible to save for your retirement in a tax efficient way with flexible access pension benefits. In fact, you can continue to grow your pension in a tax efficient way while also drawing a flexible income.

What’s the difference between flexible access and an annuity?

The main difference between flexible access pensions and an annuity is that although an annuity can give you a guaranteed pension income for life, once you buy an annuity you cannot change your mind. Flexible access pensions allow you to make changes to the way you access your pension before and after your retirement.

And, of course, they can always be used to buy an annuity in the future when the rates will be more favourable.

Will my QROPS pension have flexible access benefits?

In some cases if you transfer your pension overseas to a QROPS pension. You can read more about this in our guide to QROPS pension transfers.

Are flexible pension benefits applicable to defined benefit schemes?

In many cases, the answer is yes, the flexible access pension benefits are now available across many defined benefit, or DB pension schemes.

Do stakeholder pensions have flexible access benefits?

Stakeholder pensions were created as an alternative to defined benefit pension schemes, but with more flexibility. That said, not all stakeholder pensions will provide you with all the flexible access options that some other pension schemes do.

What is the best flexible personal pension plan?

As with many financial products, it’s not easy to select a definitive ‘best’ flexible personal pension product. That’s because while one flexible access pension from one provider might be the best one for you, yet another flexi drawdown pension might be right for someone else. You need to find out more about the different options available to find the best flexible access pension for your specific needs.

To do this, make an enquiry. The experts we work with have whole-of-market access, meaning that they can find the right plans to suit your circumstances.

Does everyone have access to flexible pension rights?

In theory, yes, they do. However, if you committed to buying an annuity before the 2015 pension freedoms were announced, then unfortunately, the only way you can enjoy flexible access pension benefit and rights is to begin saving with a new, flexible access pension scheme.

Where can I find a flexi-access pension calculator?

There are a number of flexible access pension calculators available online, including one on the government’s PensionWise website.

Keep in mind that online tools like this one only return raw data and no context. Speaking to an expert, rather than crunching the numbers yourself, is recommended since they can offer you bespoke advice based on your needs and circumstances.

An advisor will also do a ‘Cashflow Forecast’ to help you balance your pension income and expenditure.

Does HMRC offer pensions flexibility guidance?

HMRC does offer some flexible access pension guidance, including specific forms to help you claim back any pension tax overpayments.

Do local government pension schemes provide flexible access pensions for retirement planning?

Yes, most, if not all local government pensions schemes now offer flexible access pensions for retirement, inline with the rules detailed in this article.

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Tony Stevens

Tony Stevens

Finance Expert

About the author

Tony has worked in a vastly diverse array of areas in the pensions industry for over 20 years. Tony regularly writes for trade press, usually on topical and pensions pieces as well as acting as a judge at prestigious national events.

Tony is also a highly qualified Independent Financial Adviser in his own right. His mantra has always been “Hope for the best, but plan for the worst”, and believes that the biggest impact that an adviser can have on a client’s life journey is to take them on a journey from generally having little or no real idea of what their retirement will look like, to giving them the understanding of what their retirement looks like now, then helping them navigate a path to what they want their retirement to be.

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