Money Matters: What is flexible income drawdown?

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As the name suggests this option provides a much more flexible way of taking an income from a pension pot than standard income drawdown.

By qualifying for this option you effectively remove the cap on the level of income you can take.

News from the Lincs Free Press and Spalding Guardian, spaldingtoday.co.uk, @LincsFreePress on Twitter

News from the Lincs Free Press and Spalding Guardian, spaldingtoday.co.uk, @LincsFreePress on Twitter

In essence there are no income limits at all and you can draw as much income as you like when you like, although most clients plan their withdrawals around their tax bandings.

It should be remembered however that the more income you withdraw now, the less you will have available to use in the future.

As with traditional pension drawdown plans you continue to choose where your pension is invested and your money remains subject to market fluctuations.

The amount you will have available to withdraw in the future will therefore also rise or fall depending on investment performance.

The following criteria have been set out by the government to ensure investors can enter flexible drawdown with sufficient secure income in place to help prevent money running out later in retirement.

You must already have a secure pension income of at least £20,000 a year in place. This can include your state pension, a pension annuity or a company pension.

Unfortunately investment income and money from income drawdown does not count towards the £20,000 threshold.

That implies that pension pots not needed to provide the £20,000 minimum income could be taken as flexible drawdown.

Additionally, pensions can be split, with part used to buy an annuity to secure the necessary income and the remainder taken as flexible drawdown.

Other factors state that you must receive at least £20,000 of pension income in the tax year you enter flexible drawdown and that flexible drawdown can only be taken once you have finished saving into pensions.

If pension contributions have been made to any pension plan in the same tax year; or if you are still an active member of a final salary scheme, then it isn’t possible to start flexible drawdown.

If you think that investigating this area further may be of interest to you, please get in touch.