Pension Drawdown

What Is Pension Drawdown?

Since April 2015, new pension drawdown products offer flexi-access drawdown. Flexi-access pension drawdown gives you access your pension savings when you need it. Your pension pot remains invested and you draw an income when you need it. 

With Flexi-access drawdown you can withdraw as much or as little from your pension savings as you want. You choose how your money is invested. It’s an easy way to unlock cash from your pension and you can begin taking withdrawals from your 55th birthday.

The Benefits of Flexi-Access Pension Drawdown

• You can take up to 25% of your pension tax-free, as a lump sum or in portions.

• Once you’ve taken your tax-free lump sum, the rest of your pension pot can be left invested, which gives your money the opportunity to grow.

• It’s very flexible. You can vary the amount of income you draw and the frequency of your withdrawals.

• The fund doesn’t die with you. You can nominate someone to receive your pension fund when you die, such as a relative or charity.

The Disadvantages of Flexi-Access Pension Drawdown

• Like all investments flexi-access drawdown involves investment risk.

• If you draw too much too early in retirement from your pension drawdown there’s risk that your pension fund could run before you die.

• The value of investments can rise and fall so there’s no guarantee on the value of your pension fund.

• If you intend to carry on working and you draw out more than your 25% tax-free allowance your future pension contributions will be restricted to a maximum of £4,000 per year instead of £40,000.

Flexi-Access Pension Drawdown Rules

• Lump sum withdrawals up to your 25% allowance are tax-free. Any money you take on top of this will count as earnings and be taxed in the usual way.

• Remember if you draw large sums you might pay higher rates of income tax, so it’s important to plan how much you need to take and when in advance.

• You retain the option to buy an annuity at any time.

• You can access your retirement fund from your 55th birthday.