Since April 2015, all new drawdown products are built to offer flexi-access drawdown. Prior to this, some drawdown plans were capped drawdown.
Flexi-access drawdown allows you to withdraw as much or as little retirement income as you wish, while choosing how the remainder of your fund is invested. As part of the wide-ranging 2015 pension reforms, which allow those nearing retirement to gain greater control over their pensions, flexi-access drawdown is available from your 55th birthday and provides a hassle-free way to unlock cash from your pension.
The benefits of flexi-access drawdown
- With flexi-access drawdown you can take up to 25% of your pension tax-free, as a lump sum or in portions. Whether you intend to use it to supplement your income, to help loved ones or fulfil a lifelong dream, it can be yours to spend however you wish.
- Once you’ve taken your tax-free lump sum, the rest of your pension pot can be left invested. This offers the opportunity for growth, unlike an annuity which provides a fixed income.
- If you decide to draw a regular income it’s possible to manage the amount you want, and at your desired intervals. If you wish, this can be adjusted periodically to reflect the performance of your investment or to better suit your needs.
- Should you pass away before releasing all of your pension, you can nominate someone to receive the remaining funds on your behalf - such as a relative or charity.
The disadvantages of flexi-access drawdown
Like all investments there is risk associated with flexi-access drawdown.
- By withdrawing lump sums of your pension there is a chance that your retirement fund could run out sooner than if it were left in a more stable fund such as a lifetime annuity.
- The value of investments can rise and fall and there is no guarantee as to how your funds will perform.
- Once you take cash above your 25% tax-free allowance you’ll then become subject to the money purchase annual allowance (MPAA) of £10,000. This means that you can only contribute £10,000 per year, instead of £60,000.
Flexi-access drawdown rules
The tax-free pension drawdown limit is 25%. So after receiving an initial tax-free lump sum, any money you take from your pension pot will count as earnings and be taxed in the usual way. It’s worth remembering that withdrawing large sums may take you over the threshold and into a higher tax band so it’s important to consider in advance how much you plan to withdraw and when.
You can use your drawdown to buy an annuity or alternative retirement product at any point to help provide certainty or future-proof your fund.
Flexi-access drawdown vs flexible drawdown
Flexi-access drawdown is the natural successor to flexible pension drawdown plans and was introduced in April 2015. Unlike flexible drawdown, with flexi-access there is no requirement to have a minimum income from other sources. This means flexi-access Drawdown is available to a much larger range of people than flexible drawdown was.
Flexi-access drawdown from PensionBee
With drawdown from PensionBee you can start accessing your retirement fund from your 55th birthday (57 from 2028), in just a few simple steps.
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
Last edited: 17-08-2023