Flexi-Access Drawdowns Explained
The flexible access drawdown plan allows you to take an untaxed amount referred to as ‘pension commencement lump sum’, from your SIPP1, and the remaining cash is left to be invested. If you don’t opt to get an annuity with the remaining income, then it’s moved into a drawdown.
There isn’t a maximum or minimum limit on the income you can take out from the drawdown opt. However, if you solely rely on the revenue from your pension pot to maintain your lifestyle, you need to consider drawing an amount that’ll be sustainable for you.
It’s good to know that,
The income you take out will be subjected to the income tax at the typical marginal rate. Until the HMRC2 offers a tax code, you might have to apply the emergency ‘Month 1’tax code – meaning that HMRC will presume that it’s your initial withdrawal in a series of regular drawdowns. The problem with this approach is that you could end up paying more upfront taxes than you were expecting, even though the HMRC will reimburse you any tax that you overpay.
The Advantages of Taking Out the Flexi-Access Drawdown
Like all other investment options, there are a variety of benefits to opting for the Flexi drawdown UK plan. Some of these include:
- You can withdraw up to 25% of your pension amount untaxed, in several drawdowns or as a lump sum amount. It doesn’t matter if you need the cash to supplement your income, assist your family, fund that much-needed vacation, the capital is yours to spend as you wish.
- When you’ve drawn down the tax-free amount, the remaining amount is then left invested, and one of these investments can be purchasing an annuity.
- If you opt to withdraw some regular income, then you can manage the amount you need, and at your desired intervals. If you, however, wish it can be adjusted often, to imitate the performance of your investments or to suit your needs more appropriately.
- If you, unfortunately, pass away before you release your pension pot, you can choose someone who’ll receive the remaining capital on your behalf, like your spouse, civil partner, or a charity.
The Drawbacks to Flexi-Access Drawdowns
Like every other financial investment, there are risks associated with the flexible access pension:
- Through taking out a lump sum amount from your pension savings, there’s a chance that your fund can run dry sooner than if you decided to invest in a more steady pot like the lifetime annuity scheme.
- The investment value of your retirement pot can go up or fall. There’s no assurance of an outstanding performance
- When you take out money above the 25% untaxed allowance, you’ll then be subject to the MPAA, of €4,000. It means that you’re limited to only contributing €4,000 every year, rather than €40,000.
The Flexi-Access Drawdown Rules You Need to Know
After you’ve taken the first tax-free lump sum amount, any cash you withdraw from your pension pot will be termed as earning and be taxed typically. It would be best if you remembered that drawing down significant sums of capital might take you over the threshold and into a much higher tax band. Therefore, it’s essential to consider, in advance, the amount you plan to take out and when.
The bottom line?
You can use your withdrawals to purchase an annuity or substitute retirement plan at any point to assist in offering you certainty or future-proof your pot.
Flexi-Access Drawdown Schemes vs Flexible Drawdowns
Here’s the catch:
The flexible access drawdown pension is the natural heir to the flexible drawdowns, and it was launched in April 2015. Unlike the flexible drawdown pension though, the Flexi-access doesn’t require a minimum income from other sources – meaning, the Flexi-access plan is accessible to a vast range of people than the flexible drawdown pension ever was.
Got Questions? Check These First
What’s the Flexi-Access Drawdown?
Well, the Flexi-access pension plan is a financial product that allows you to access your pension pot whenever you need it, while also reinvesting the remaining capital in a way that’s specifically designed to offer you an ongoing retirement income.
Since 6th April 2015, all the new drawdown plans are designed to provide the Flexi-access drawdown product.
Is the Flexible Pension Drawdown A Good Idea?
Yes, it is. One of the principal advantages to having the flexible access drawdown is that your pension savings remain invested even as you keep withdrawing funds from the pension pot.
What’s the Difference Between Flexible Access Plan and Capped Drawdowns?
You can draw down a capped drawdown plan income from the pension pot. With the flexible access pension through, the consumer takes the first 25% tax-free lump sum, and then the remaining amount is used to offer a regular income or ad-hoc lump-sum amounts.
What’s the Difference Between the Flexi-Access Drawdown and UFPLS?
Both the Flexi-access drawdown pension and uncrystallized funds pension lump-sum are modes of withdrawing from your pension pot periodically. The principal difference is that when you draw your tax-free capital.
Flexi-Access Drawdown is a life-changing pension plan that can provide you with financial security in your retirement years. It’s designed to protect against the risk of outliving your savings and also provides tax advantages.