What is flexible drawdown?
Flexible Drawdown is a way of taking income from your pension without buying an annuity.
Flexible income drawdown quite simply is an ‘income withdrawal’ and payments are paid to you direct from the pension scheme. Unlike other forms of income drawdown such as capped income drawdown there no limit on the amount that your pension scheme can pay you in any year. All payments of flexible drawdown are taxed under PAYE.
Individuals with a ‘lifetime income’ of at least £20,000 may take unlimited withdrawals from their drawdown funds, provided that the scheme permits it.
Sources of income which count towards the new flexible drawdown include guaranteed lifetime income are state pensions, defined benefit schemes, scheme pensions and lifetime annuities .
A 55 per cent tax charge will apply to lump sum death benefits. Previously the tax on crystallised funds was 35 per cent, rising to 82 per cent post age 75.
The Treasury has also confirmed that pension drawdown funds will not be subject to inheritance tax (IHT). Currently IHT applies to unused lump sums where an annuity has not been purchased by the time of death.
Here’s a couple of examples:
MR GD from Leicester had a fund of £850,000 in his SIPP age 59
He took a joint life 50% spousal Annuity (wife age 58) to get £18k per annum as he had £2k from another scheme.
Took Annually in arrears as plans to use flexible income drawdown in 2013.
Mr BB from london age 62 fund of £1.2 million in 3 private pension funds, took single life Annuity for £20,000 then no income ceiling on his balance in flexible draw down.
Mr SG age 66 from London fund of £1.3 million in his SIPP, state pension of £6,430 per annum require a further income of £13,570 to qualify for flexible drawdown, taken joint life 100% spousal annually in arrears.