Flexible Drawdown was introduced in April 2011, and as the name suggests this option is much more flexible than Capped Drawdown. Qualifying for this option removes the cap on the income you can take. So, there are no income limits at all, and you can draw as much income as you like when you like.
In principle, if you fulfill the qualifying criteria, you could immediately take 25% of your pension fund as a tax-free lump sum together with the remaining 75% as lump sum taxed at your highest rate(s) of income tax.
However Flexible Drawdown will not be available to everyone, and there are certain criteria that must be met before you can choose it.
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 gross a year in place (this is called "Eligible Income"). This can include your State Pension, a Pension Annuity, or a Company Pension. However, you cannot include: investment income, a Purchased Life Annuity, or earnings . Once the Eligible Income is met all other Personal Pension could be taken as Flexible Drawdown. Remember - pensions can be split, with part used to buy an annuity to secure the necessary income and the remainder taken as Flexible Drawdown.
- It isn't possible to take Flexible Drawdown from a protected rights pension (money from contracting out of the State Second Pension or SERPs). Protected rights are expected to be abolished in April 2012 which will effectively remove this restriction.
- Flexible Drawdown can only be taken once you have finished saving into pensions. If pension contributions have been made to any pension in the same tax year, or if you are still an active member of a final salary scheme, it isn't possible to start Flexible Drawdown. Once in Flexible Drawdown it isn't possible to make further pension contributions.
I have been quite surprised in recent weeks the number of Flexible Drawdown enquiries we have received. If this area of retirement planning is of interest or appropriate to you, please do not hesitate to make contact with us on 01244 347583.