Flexi-Access Drawdown plans were introduced in April 2015. There are no limits on the income you can draw from your plan at any one time, and you do not need to prove you have a guaranteed income in place.
Any money you withdraw from a flexi-access drawdown can be in the form of income, tax-free cash, or both.
To withdraw money you first have to crystallise the funds. You can take 25% of the crystallised amount as a tax-free cash payment, called a Pension Commencement Lump Sum, or PCLS. You can draw the remaining 75% as taxable income (subject to your marginal rate), or leave it in the account to access in the future.
With careful planning and patience, a flexi-access drawdown pension can drastically reduce the amount of tax you might otherwise have to pay.
The first income payment from your plan may be paid under an emergency tax code, which means you might pay more tax than necessary. Any overpaid tax will be corrected through your personal tax account in time, or you can complete a form to refund the tax. Exactly which form you need will depend on your circumstances, so speak to one of our advisers for more information.
If you draw any taxable income, even £1 (i.e. not the PCLS), you will trigger the Money Purchase Annual Allowance (MPAA), which limits how much you can contribute to a personal pension. The MPAA limit for the 2023/24 tax year is £4,000.
In the event of death, the remaining benefits in the drawdown plan may be taxed differently depending on if they are crystallised or uncrystallised, or if you are younger or older than 75.
Flexi-Access Drawdown plans provide some of the most flexible pension benefits available, but it’s important to get professional advice to ensure you are not caught out by some of the quirks of this product.
