Know Your Options for Pension Drawdown Plans


When retirement looms and you are looking at how to access money from your pension, you might well need some advice. Drawing money from your pot of funds is a decision you need to consider carefully and that is why it is worth seeking professional help for support.

What Exactly is Pension Drawdown

This concept, that is also referred to as Flexi Access Drawdown, is a plan that allows you to withdraw anything up to 25% of your retirement fund, without it being subject to tax. You can also withdraw an income in a flexible way to suit your own individual circumstances but this will be subject to your marginal rate of tax. There are two ways that you can access a pension drawdown before you have actually retired. Having options gives you, the customer, the control over your finances.

A One Off Sum (Full Drawdown)

As you are nearing retirement, your advisor will work with you to transfer your funds to a pension drawdown account. At this point, as long as you are over 55, you can take out a sum that equates to anything up to 25% of the total. This can be enjoyed tax-free and does not count towards your personal allowance, offering you an efficient way, in terms of saving tax, to access funds you may need for the immediate future. The remaining fund can be drawn in whatever way suits you, it will be classed as income and subject to your marginal rate of income tax. If you work with a financial adviser you can work out the most optimum way to withdraw this income from a tax as well as lifestyle perspective.

Staged Withdrawal

The other option is to access a smaller amount of your pension tax-free each year. This can be used to meet immediate expenses and exists as a way of putting less stress on the overall pot of money. If this was taken as income, it would incur tax and therefore a higher gross amount would be required to meet annual expenditure. This option is one that is usually recommended for customers who don’t need a large amount of cash at one time. They are normal people who have paid off their mortgage and have a reserve of savings. For these clients, it can be beneficial to take smaller amounts of tax-free cash over a longer period of time.

Advantages of Pension Drawdown

The primary advantage of this plan is the tax relief element in the accumulation stage. While you are building your fund it is not subject to tax and the pot of money you end up with is not considered as part of your estate for inheritance purposes and so doesn’t usually incur inheritance tax. This is the very reason that pensions are seen as the best way to invest and save.

This kind of plan also offers much flexibility in the decumulation stage. On your death, any funds remaining can be passed to your dependents, your spouse, or anyone else you specify.

Are There any Disadvantages?

This option does not suit everyone and your advisor will need to consider your individual circumstances carefully before deciding whether the pension drawdown is for you. There are other avenues you can take but this is beyond the scope of this article.

Whatever you decide to do about your retirement fund, it is always advisable to seek professional help. There are lots out there, so make sure you choose someone who offers you an individual profile that suits your requirements and circumstances.

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Claire Novakovic is the go-to expert for those who need advice on pension drawdown and other related issues. As a Chartered Financial Advisor, she is the in-house pension expert for Accudo Investments. Offering comprehensive independent financial advice tailored to each individual’s needs, Accudo Investments provides effective portfolio management and tax strategies to meet the needs identified.

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