Flexi-Access Drawdown Pension

Your Freedom To Choose

Reaching 55 is something worth celebrating because it heralds the time when you get to make some real life-changing financial choices. 

These choices could give you the freedom to retire early, go part-time, or make a long-held dream a reality, like buying a holiday home or splashing out on a state-of-the-art camper van.

What is a Flexi-Access Drawdown Pension?

As the name suggests, a Flexi-Access Drawdown Pension gives you the flexibility to access the funds in your pension pot and drawdown money as and when you want to.  

This style of pension was introduced in April 2015 to complement the pension freedom reforms which gave us more control over our pension savings as we near retirement age.

When you reach 55 you can either usually/normally or should be able to leave your workplace pensions where they are until they mature, buy an annuity that will pay you a guaranteed income for life, or place your funds into a Flexi-Access Drawdown Pension. 

What are the benefits of a Flexi-Access Drawdown Pension?

A Flexi-Access Drawdown Pension gives you the freedom to choose when to drawdown funds and how to take income drawdown.  

Once your Flexi-Access Drawdown Pension is set up, you can take up to 25% of your pension as tax free lump sums or smaller amounts to make the tax free portion of your pension last longer. How you use the money after you’ve taken it out is up to you.

When you’ve used up all your tax-free cash, the funds left in your pension are reinvested so they can carry on growing to provide you with a retirement income later on, or straight away.  

This gives flexi-access drawdown an advantage over an annuity pension, which will only pay you a set amount of income each month.

Because it’s flexible, you can adjust the amount you pay yourself if you take a regular income drawdown. So, if your investment is performing well, you can pay yourself more. Likewise, if you find you’re not spending all the money you’re taking out, you can lower the amount.

Another benefit is you can leave the money to a relative or charity if you die before all the funds have been used up. Your remaining funds will be paid out tax free and are not subject to inheritance tax charges. Money left tax free to family is in the event an individual dies before the age of 75.

What are the disadvantages?

Dependent on your circumstances it is likely that the benefits outweigh the disadvantages, however, here are some drawbacks you should be aware of. 

For example, because a flexi-access drawdown pension allows you to take out lump sums, you could run the risk of running out of money and deplete all your pension savings. 

Because the money in your pension is invested in stocks and shares, the value of your pension fund can rise and fall.  

Once you’ve enjoyed the 25% tax relief portion of your pension, you will be subject to income tax on the remaining 75%.  However, there are ways to draw a modest income within your tax allowance to limit the amount of tax you could pay.

Once you start using the taxable 75% portion of your pension, the money purchase annual allowance (MPAA) applies. This prevents individuals from investing in other pensions.

As experienced financial advisers we will calculate exactly how much of your fund you can take as tax free cash and how to draw the taxable portion efficiently. 

We’ll also advise you on how much to keep invested so you can continue to make the money in your pension fund last you well into your retirement.

Flexi-Access Drawdown VS Flexible Drawdown

Flexible Drawdown, also referred to as ‘Capped Drawdown’, is no longer available to new applicants. It was superseded by Flexi-Access Drawdown after April 2015 as part of the new pension freedoms. 

The difference between the two types of pension is that Flexible Drawdown requires you to have a minimum income from other sources and limits the amount you can draw down. 

The limit is set at 150% of the annuity income someone in good health and the same age could receive. This is calculated using Government Actuary Rates. If you’re older than 75 your income will be reviewed annually or reviewed every three years If you’re younger.

None of these restrictions apply to a Flexible-Access Drawdown Pension, which allows you unlimited access to your pension fund. 

If you have a Flexible Drawdown product, it will continue unchanged. The good news is that if you’d prefer more flexibility, access and choice, it is possible to transfer your Flexible Drawdown product to a Flexi-Access Drawdown Pension.

How can Spectrum Wealth Management help?

It’s really important to take advice from a trusted pensions expert when thinking about setting up a Flexi-Access Drawdown pension.  

We will work with you right from the very start of your pension journey, saving you time and money by helping you choose the most appropriate pension strategies for your retirement aspirations.