Flexible Drawdown

**** Flexible Drawdown is new from April 2011****

Flexible drawdown is available to people who have a guaranteed pension income of at least £20,000 p.a.   This income can be scheme pensions, annuities and state pension (but not drawdown income).

The “flexible” bit means that you can draw any amount of income annually from your fund until the fund is exhausted.  So the whole fund could be taken immediately as a single lump sum income payment, but the income withdrawn is subject to income tax therefore some careful planning is required to ensure the tax charge is managed efficiently.

For example:  In some cases we are now using a Fixed Term Annuity contract to facilitate Flexible Drawdown.  With a £100k transfer and £25k tax free cash being taken immediately we can show the plan being written for 5 years, and a guaranteed income of £15,278 being taken annually in advance, so the plan is effectively worth zero after 4 years and 1 day (after 5 payments have been made).  This works well as it could help a client withdraw income from the plan more tax efficiently than withdrawing the whole fund immediately and possibly incurring additional rate income tax liability on the residual fund after the tax free cash has been taken.  There is no investment risk with this product because the payments are made from a short term guaranteed annuity.  The rate quoted can change depending on age and the term chosen, you will need an individual illustration before making any decisons. 

I hope this is useful, and please just let me know if you would like any quotes or further information.