Flexible access to your pension pot

You can access your pension savings as and when you like, taking however much money you want.

With flexible access to your pension pot, you could:

  • Take your money in chunks
  • Take 25% of it tax-free
  • Leave the rest invested so it can potentially grow
  • Pass on the money left when you die tax efficiently

Its not all good news however, you could run out of money if you don't budget properly and you will reduce your annual allowance (the maximum amount you can save into a pension each year) if you access any of the taxable part of your pension pot.

Flexi access drawdown is only available from existing plans or arrangements if the scheme rules allow.  Most existing personal pensions or occupational DC schemes are not set up to facilitate flexi access drawdown and will need to be transferred to a new personal pension that offers flexi-access drawdown. 

Within the overall limit of 25% tax free cash and the remainer being taxed at the individuals marginal rate, the withdrawals can be built to suit an individual’s own tax situation.  Some years it might be appropriate to take more tax free cash and other years more taxable income to take advantage of individual allowances.

Flexi access drawdown give you complete flexibility on how to stucture your withdrawals.

Another way of taking pension benefits, if the existing scheme allows it, is to use Uncrystallised Funds Pension Lump Sum(s), known as UFPLS without going into drawdown or buying an annuity. This is less flexible than flexi access drawdown because each withdrawal consists of 25% tax free cash plus 75% taxable income.

UFPLS can be used to withdraw the whole in one go, taking 25% tax free and the remaining 75% taxable (as indeed can flexi-access drawdown).  Most pensions will allow this option and this works reasonably well for small pension pots where moving to a flexi access drawdown arrangement would be uneconomical.

An example of how Flexi Access Drawdown (or UFPLS) might explain how it works.

Roger is 60 years old and has stopped working in April, he has a personal pension fund of  £80,000, plus his state and final salary pension which are due to start in 6 years when he reaches 66 years.  He has calculated that the state and final salary pension will be adequate for his needs and plans to use his personal pension pot to cover the next six years.  He needs £14,000 each year for six years until his state and company pension kick in.  Using Flexi Access Drawdown or UFPLS he can withdraw the £14,000 each year from his plan.  £3,500 (25%) of this is tax free and the remaining £10,500 although taxable would be below his personal allowance (currently £10,600 per annum) so he would actually pay no tax.  The remaining fund still grows in a tax efficient environment, so although not guaranteed it seems reasonable to assume the fund would last for the 6 years required if invested sensibly.  If he had simply cashed in his whole pension pot in one lump sum he would have paid £13,403 income tax in 2015/16 and would still have had to find somewhere to put the money to last 6 years.  

If you think flexi access drawdown could be suitable for you then you should call us on 01604 832932.

A PENSION IS A LONG TERM INVESTMENT THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY DEPEND ON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES, AND TAX LEGISLATION


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