Flexi-Access Drawdowns – What’s The Story?



Posted on: 20th September 2016

If you’re having trouble making head or tail from flexi-access drawdowns, you’re far from in the minority. But while it may come across as a relatively complex subject, the flexi-access drawdown exists for the sole purpose of improving flexibility and financial freedom upon retirement. Or to put it another way – to make life easier for those choosing to take out such products.

In terms of what exactly it is, a flexi-access drawdown is available to anyone of minimum retirement age (currently 55) and essentially converts a standard pension pot into a different kind of savings account.

Those with flexi-access drawdowns are able to make a lump sum tax-free withdrawal of up to 25% of their total savings, while leaving the rest to sit in a generous pension plan and continue to grow.

Alternatively, those who aren’t interested in taking out this lump sum with no tax payable have the option of having their funds paid gradually as a form of regular income, of which 25% would be paid out tax-free – the rest of the money paid out would be taxed at the normal applicable rate.

For those who choose to go on working after they reach the minimum retirement age, there is the option of continuing with pension contributions and still withdrawing 25% of the total funds saved tax-free. Such savers can continue to pay up to 100% of their earnings into a pension pot, up to the maximum annual allowance set by HMRC at £40,000.

Increasingly, flexi-access drawdowns are being turned to as a highly tax- efficient, flexible and accessible options, providing savers with unique freedom of choice when accessing and managing their savings.

There are effectively four things that can be done with a flexi-access drawdown, which are as follows:

  • Take the Full Fund – The fund in its entirety can be taken over two or more years, in order to minimise taxation.
  • Maximise Income – Use the pot to create a steady flow of income for life.
  • Replicate an Annuity – Match the income from a lifetime annuity. (Subject to sufficient funds remaining available.)
  • Let it Grow – Access none of the savings and leave the pot to continue growing, accessing it later as and when needed for lump sum withdrawals.

What makes the difference is the way in which by staying within the realms of pension savings rather than standard savings, you gain access to a number of unique and exclusive benefits like tax relief.

The potential for returns as high as 5% or even 6% per year can outpace anything even the biggest banks can offer, while the flexibility of being able to access your savings in a manner that suits you also adds to the appeal. However, savers are reminded that pensions and drawdown can make or lose money depending on investment returns, which are by no means guaranteed.

With so many options to choose from, it’s always recommended that independent financial advice be sought, before making any final decisions. For more information or to discuss the options available to you, get in touch with the Haven IFA team today.