Looking for the flexibility to access your pension money?
When it comes to a retirement fund, it’s a very big decision to draw money down. We’re committed to providing informed, personalised support to our clients at any stage of their lives, whether they’re experienced investors or complete novices.
What is Flexi Access Drawdown?
Simply put, Flexi Access Drawdown is a pension drawdown that enables you to access your retirement fund and take out up to 25% of the money as tax-free cash. It also facilitates the withdrawal of an income to suit your individual situation and circumstances.
Flexi Access Drawdown enables you to access your money before your retirement in two different ways.
- You can take up to 25% of the total as a tax-free lump sum taken in one go.
- You can gain access to more of your total pension with nominated withdrawals of smaller amounts of 25% of the amount transferred to drawdown only, rather than 25% of the total pension pot.
A lump sum with no tax
When we work with you on a personalised plan to manage your retirement funds and set up or transfer money to a Flexi Access Drawdown, after the age of 55 you’re eligible to withdraw a lump sum of 25%.
Because this is not allocated to your annual tax-free personal allowance, it can be an effective, tax efficient way of accessing funds to purchase an annuity or to use immediately for another purpose.
Flexibility of staged withdrawals
We can manage your portfolio so that you can withdraw a smaller amount of tax-free cash annually, by helping you to access staged tax-free withdrawals. These staged withdrawals can be tailored to meet your individual financial needs, which means there’s less pressure on the entire pension fund, because of their tax-free nature. Unlike taking income from your pension, which would be potentially subject to tax, you won’t need to pay a higher gross amount annually in order to meet your expenditure requirements.
We recommend this kind of strategy for clients who don’t need large amounts of cash all at once; for example people who have some cash reserves as a safety net and whose mortgage is paid off. In these kinds of circumstances it can often be beneficial to have staged tax-free cash withdrawals over a period of years.
Helping your pension grow
Deciding on a Flexi Access Drawdown is about creating flexibility and autonomy, not simply taking your money out.
You may wish to make use of your account to continue the growth of your overall pension pot. Although a pension is traditionally used to create an income in retirement, if there are other assets available to support retirement it may be beneficial to use these first due to the inheritance tax advantages of pensions. Accudo Investments can create a portfolio of investments for you whether the objective is growth or income and we can use both growth and yield based investments to meet either objective.
Whether or not you decide a pension drawdown is right for you, you can rest assured that our relatively defensive investment approach at Accudo Investments will be focused on your personal income needs and achieving the required growth to ensure capital preservation.to meet your expenditure requirements.
Advantages of Flexi Access Drawdown
Flexibility: Upon your death, unlike an annuity any remaining funds can be transferred to your children, spouse or other beneficiaries.
Tax Efficiency: Because of the generous tax relief that applies during the accumulation period of your retirement fund, as well as the aspect that they are outside the estate for the purpose of inheritance tax (meaning that except in exceptional circumstances they are not liable to inheritance levies), pensions are widely considered to be one of the most tax efficient ways of investing and saving.
The disadvantages of Flexi Access Drawdown
At Accudo Investments we pride ourselves on our commitment to independent consultancy and our advice is always based on your individual needs and circumstances. Choosing to take income via Flexi Access Drawdown is not suitable for everyone, so if it is not in your interests we will inform you and guide you towards more appropriate options.
Limited Funds: While an annuity is guaranteed for the duration of your life, this is not the case for pension income drawdown. Funds can be depleted if too much cash is taken out, so smaller pension pots are not suitable for this.
Investment Risk: Our highly skilled team will manage your investment portfolio with the greatest of care, however the funds are effectively still tied to the performance of the market. It is essential to understand the market can go down as well as up, requiring an element of managed risk. If you do not feel comfortable with this kind of scenario an annuity would be a far safer choice.
Withdrawing a Lump Sum
Accudo Investments was approached by 63-year-old Mrs Smith, who wanted to access a portion of her retirement funds in order to pay off the outstanding mortgage on her home.
- Personal pension worth £100,000
- Wants to take out £25,000 to pay her daughter’s fees
- Doesn’t need any income as yet.
For Mrs Smith, an effective strategy would be to withdraw £100,000 as a tax-free pension commencement lump sum (PCLS). Once she has withdrawn the cash that will leave £300,000 in crystallised funds in her account. Subject to income tax at her marginal rate, she will be able to start taking an income from this whenever she wants. Choosing to take tax-free cash without any income will have no effect on the amount she can pay into any existing pension fund.
Drawing Down a Staged Income
Mr Parker, aged 56, came to Accudo Investments when he needed advice about planning for his retirement.
- Combined Pension Plans for Mr John Parker £800,000 and none for wife
- Mortgage-free home worth £600,000
- Current Account worth £5,000 and a Savings Account worth £50,000
Working with Mr Parker, we established that he and his wife would require an income of £30,000 NET per annum.
One possible strategy would be to crystallise 1/10th of the fund every year for the next decade until he reaches state retirement age, to withdraw lump sums of tax-free money. In this scenario the projected income streams would be:
Year 1-10 (assuming nil growth in the personal allowance band* and nil growth in the fund)
- £20,000 tax-free cash (i.e. 25% of £80,000 being 1/10th of the fund crystallised)
- £10,000 taken out as tax-free income, which is within the personal allowance.
Total Net Income £30,000
Year 10 onwards
At this time, John’s state pension of approximately £9,500 (in today’s terms) would commence. Working on the assumption that the Parker’s income requirement is still £20,500 net in today’s terms, this means a further £21,500 net would need to be withdrawn as income. (This equates to £25,000 gross, assuming the personal allowance is still £12,500 in today’s terms and John is a basic rate taxpayer.)