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Pension drawdown

Greater flexibility in accessing your pension funds

Pension drawdown is a flexible way of taking income from your pension, introduced after the pension freedom rules in April 2015. Before that, the government limited how much income you could take from your pension unless you had other sources of income, and annuities were commonly used to provide a guaranteed income for life.

Nowadays, you have more flexibility in accessing your pension funds, allowing you to take as much or as little as you want. However, you must be aware of potential tax consequences if you withdraw the entire amount at once. Some individuals prefer to invest their pension funds for potentially higher growth rates rather than opting for annuities or a combination of both options.

Specific tax implications to consider

It’s essential to seek professional advice well before retirement to ensure that you have a clear understanding of your income requirements and how much you need to have invested to meet these needs. Doing so allows you to access your money in a way that suits your financial goals. Waiting until the last minute can make the process more challenging.

When accessing your pension, there are specific tax implications to consider. Once you reach the age of 55, you can take up to 25% of your pension completely tax-free. You don’t have to take the full 25% in one go; many people choose to drip their tax-free cash out slowly. This allows them to benefit from continued growth in the remaining pension while regularly accessing a portion of their tax-free cash for tax efficiency.

Withdrawals from your pension

Uncrystallised pension lump sum rules apply to achieve this, and only 25% of each withdrawal is paid tax-free. It’s important to note that any withdrawals from your pension, excluding the tax-free cash, are taxed at your marginal Income Tax rate. Therefore, caution is required before taking a lump sum from your pension. You could easily be pushed into a higher tax band if you withdraw a significant amount in a single tax year.

Obtaining professional financial advice will enable you to build assets within multiple tax vehicles alongside your pension to reduce your tax burden. By diversifying your income sources, you can effectively manage your tax obligations.

Ready to discuss your retirement goals?

Pension drawdown allows you to access your money as and when needed within specific tax rules. You also need to ensure that your pension scheme supports flexi-access drawdown; if it doesn’t, you may need to transfer your funds. To find out more, please contact us to tell us about your retirement goals and how we can help you.

A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS THE PLAN HAS A PROTECTED PENSION AGE).

THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS.

YOUR OWN PERSONAL CIRCUMSTANCES, INCLUDING WHERE YOU LIVE IN THE UK, WILL HAVE AN IMPACT ON THE TAX YOU PAY. LAWS AND TAX RULES MAY CHANGE IN THE FUTURE.

Adam Reeves

Author: Adam Reeves

DipPFS Cert CII (MP&ER)
Independent Financial Planner, Wealth Manager, Director

Last updated on

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Adam was quick to assess & understand my situation, and was able to discuss & communicate in a very concise and simple way the various options available to me, taking time for me to understand and clarify where necessary. My understanding & knowledge of taxation & pensions has increased significantly allowing me to feel much happier making financial decisions for the future.

Rob – West Sussex

Adam and his team undertook in-depth research into our existing QROPS schemes and clearly set out both pros and cons of transferring the funds back to the UK. Having decided to go ahead with the transfer, Adam and his team worked extremely hard to facilitate the transfer. The QROPS pension trustees were not always the most professional or responsive organisation – however we were very grateful for the perseverance and commitment that Adam showed us as clients.

Jonathan – East Sussex

Adam offered a range of financial products , the one he suggested was affordable and proved to be a good choice.  Returns on investments have exceeded my expectations, based on Adam’s advice and guidance. Profits have enabled house improvements to take place.

David - Surrey

Adam arranged an appointment very timely, he explained his role and qualifications as an IFA giving me reassurance , we went through my retirement and investment goals. Adam discussed my options explaining in great detail, I felt relaxed during our discussions allowing me to fully understand my choices. I feel very confident in the financial advice allowing me to enjoy my retirement.

I was very happy with Adam’s recommendations and explanations of financial products which would suit my retirement goals, I feel this has helped me review and reduce my financial risk as I reach retirement, leaving me feeling confident that I can enjoy my retirement plans.

Ron – West Sussex

After initial meeting Adam put together a very detailed and thorough written plan. At our second meeting he went through the whole booklet and explained everything in layman’s terms which made it a lot easier to understand.

I am very happy with everything that was suggested and put in place especially with something as big and important as pensions. Adam and his team have taken a huge weight off my shoulders and I would highly recommend their services to anyone needing help with their financial planning and pension.  Adam couldn’t have been more helpful, and even came outside his normal area to meet me on a number of occasions.

Richard - Kent

Unfortunately I had to claim on my critical illness insurance due to my wife being ill and because of the sound advice Adam gave in acquiring this insurance we ended up being financially safe through a tough time.

Steve - Kent

Adam did a review of our financial situation, confirmed that Flexible Drawdown best suited our needs as a family, and then did all the research into the best product for us. He will continue to monitor it for me. He acted extremely promptly because we had a deadline for requiring the lump sum; went out of his way arranging meetings during non-office hours, was professional yet friendly and explained a difficult subject very well.

Clare – East Sussex

Adam did a thorough review of my pension policies, clearly explained how well they had performed, how flexible they were, how the market regulation has changed, and, crucially, what the tax implications would be if I were to leave them untouched. He accurately assessed my attitude to risk and recommended an up-to-date solution that will offer me the greatest flexibility at retirement.

Greg – East Sussex
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Data is compiled by Adviser Portals Ltd every 60 minutes. Information is not realtime. Last updated: 22/06/2024 at 07:00 AM
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