Are you approaching retirement or looking to access your pension funds? Some of the key factors to consider are:
- Do you need a lump sum.
- How much pension income do you require.
- What effect will inflation have on your pension.
- Do you need flexibility or guarantees.
- Are death benefits important.
- Do you have a spouse or dependants that you wish to provide for.
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Before drawing your pension benefits from an existing pension scheme, it pays to seek independent financial advice.
Is transferring to flexi-access drawdown right for me?
More and more clients are looking at flexible ways to access their pension schemes. This may include:
- Transferring an existing personal pension into flexi access drawdown to provide more flexibility and control over income.
- Considering a defined benefit/final salary transfer for more flexible benefits, higher tax free cash or improved death benefits.
- Accessing pensions to obtain tax free cash only.
- Using pension flexibility to retire early.
As an adviser, we compare what’s on the market and find you the right product for your needs and circumstances. We complete all the paperwork and liaise with your current pension provider to make the transition to flexi-access drawdown as smooth as possible.
How does flexi-access drawdown work
You can normally choose to take up to 25% of your pension pot as a tax-free lump sum. You can then invest the remaining pot fund into one or more funds. Going forward you can choose to leave the fund invested, take a taxable income or taxable lump sums at times that suit you.
Things to think about
You need to think carefully about how much income/cash you can afford to take under flexi-access drawdown otherwise there’s a risk you could run out of money. In addition if you are transferring a pension with guarantees, you need to be sure you are not reliant on those guarantees and you can afford to give these up.
What tax will I pay
Any money you take from your pension pot (after the tax free cash) will be added to your income for the year and taxed in the normal way.
Tax relief on future pension saving
You can normally get tax relief on pension contributions to a defined contribution pension scheme of up to £40,000 or 100% of taxable salary each year. (Annual Allowance) However if you draw a taxable income/lump sum from a Flexi-Access drawdown scheme the amount you can pay into a pension and still get tax relief reduces. This is known as the Money Purchase Annual Allowance (or MPAA). This is currently £4000. If you intend to take the 25% tax free cash only then the MPAA does not apply.
What happens when you die?
You can nominate who you would like to get any money left in your drawdown fund when you die.
If you die before the age of 75, any money left in your drawdown fund passes tax free to your nominated beneficiary whether they take it as a lump sum or as income. These payments must begin within two years of your death, or the beneficiary will have to pay income tax on them.
If you die after the age of 75 and your nominated beneficiary takes the money as income or lump sum, they will pay tax at their marginal rate. This means that any income or lump sum taken on or after this date will be added to their income and taxed in the normal way.
Your other retirement income options
Flexi-access drawdown is just one of several options you have for using your pension pot to provide a retirement income. You could also consider annuities to provide a guaranteed income. Annuities still have a valid place in retirement planning. Schemes generally offer an Open Market Option that allows you to shop around when buying your pension. Not all insurance companies pay the same annuity rates. Do you know that some annuity providers can even offer ill health annuities and enhanced annuities to smokers.
We can help you decide on the most suitable retirement product for you.
Please feel free to CONTACT US to find out how we can help.
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