Flexi-access drawdown

Flexi-access drawdown, a new pension option, lets you withdraw any amount from your pension fund, even the entire sum, though this may not always be tax-efficient. You can take 25% of your fund tax-free (if not previously used for drawdown), while the rest can provide you with income. However, if you rely on your pension for lifetime support, consider taking a lower income to make it last. Remember, the income you withdraw will be subject to your marginal Income Tax rate, and withdrawing too much could push you into a higher tax bracket.

Pension lump sum

The Uncrystallised Funds Pension Lump Sum (UFPLS) lets you take either a one-off payment or multiple lump sums from your pension, leaving the rest invested. Each UFPLS is 25% tax-free, with the rest being taxable. Remember, UFPLS is not available for funds already in drawdown and triggers a £10,000 restricted annual allowance.

Capped drawdown

In capped drawdown, you have a maximum annual income limit, reviewed every three years until age 75, then annually. From 6 April 2015, you can choose either to continue with capped drawdown or switch to flexi-access drawdown, which has no income limit and no further reviews. Switching to flexi-access drawdown changes your annual pension contribution limit to £10,000.

Flexible drawdown

If you were already in flexible drawdown before 6 April 2015, you automatically moved to flexi-access drawdown. This change doesn’t affect your benefit withdrawals but allows tax-relieved pension contributions up to £10,000 annually.

New Death Benefit Rules

You can nominate anyone to receive your pension’s death benefits. Beneficiaries can either take a lump sum or opt for income under flexi-access drawdown rules. If you die before 75 and your pension is assigned within two years, benefits are tax-free. After 75, or if not assigned within two years, benefits are taxable, usually at the beneficiary’s marginal rate.

Annuity Options

Purchasing an annuity remains a viable option, providing a guaranteed lifetime income. This might still be the best choice for some people.

Investment and Tax Considerations

Please note, investment values and income can fall and rise, and you might not get back your original investment. Not all personal pensions offer self-investment options, so check your pension details if required. Taxation laws and HM Revenue and Customs practices are complex and subject to individual circumstances and changes. Tax concessions are not guaranteed and may change. ‘Tax-free’ means no tax is payable by the investor.

Before finalizing any arrangements, we provide specific personalized advice, ensuring that you understand and are comfortable with your pension options.