Flexi-Access Drawdown Explained

What Is Flexi-access Drawdown?

Flexi-access drawdown enables you to take income from your pension pot in the shape of lump sums and keep the remainder invested. You can then withdraw as much or as little as you want, whenever you want.

You can also continue making contributions and leave any remaining money to selected beneficiaries after your death.

What Are The Benefits Of Flexi-access Drawdown?

There are various flexi-access drawdown benefits, including the following:

• You are in full control of your pension savings and investments.
• You have the ability to make flexible withdrawals as required.
• A flexible retirement income gives you scope for tax efficiency.
• Investments have the potential to deliver inflation-beating growth.
• You can pass down any remaining funds to your selected beneficiaries.

What Are The Disadvantages Of Flexi-access Drawdown?

Flexi-access drawdown is not without its disadvantages, which include the following:

• There is a risk you could run out of money if you are not careful.
• If your investments perform badly your income could be curtailed.
• Investments require careful and regular management.
• Various flexi-access drawdown charges and fees to bear in mind.

How Does Flexi-access Drawdown Work?

In essence, flexi-access drawdown works along the following lines:

Tax-free Portion

You can normally access your pension savings from the age of 55 (rising to 57 in 2028). With a defined contribution pension, including Self-Invested Personal Pensions (SIPPs), you can usually take up to 25% of your funds tax-free.

You have two main options at your disposal here:

• Withdraw this tax-free amount as one lump sum, requiring the remainder to be moved into drawdown.
• Move portions into drawdown, whereby 25% of each withdrawal is tax-free and the remainder is taxable. This option is sometimes called ‘phased’ or ‘partial’ drawdown.

Taxable Income

Any withdrawals you make over and above the 25% tax-free portion of your pension, whether it be the full lump sum or smaller portions, will be subject to income tax for the tax year that you take them. 

Investments

With a flexi-access drawdown pension you can choose where to invest any funds moved into drawdown.

You can either enlist the advice of a financial adviser or choose your own investments using ready-made ‘investment pathways’ that are offered by some providers.

However, it is worth remembering that investments can go down as well as up, which may impact your retirement income. Therefore, professional advice can be invaluable. 

Who Can Use Flexi-access Drawdown?

Anyone aged 55 and over can, in theory, use flexi-access drawdown as long as their pension provider’s scheme rules enable them to do so. So it is worth checking the terms and conditions of your pension arrangement.

Even if your provider’s flexi-access drawdown rules allow, it is worth shopping around and researching all the possible drawdown provider options available to you to ensure fees and charges don’t erode your income too much.

Learn more about Hilltop’s Pension Drawdown service.

Flexi-access Drawdown Frequently Asked Questions

What Happens To The Money In My Flexi-access Drawdown Account If I Die?

It really depends on the circumstances. If you die before the age of 75, any remaining pension savings could be bequeathed to your beneficiaries tax-free.

They have a choice of taking a lump sum or receiving a regular income. If you die beyond 75, any income your beneficiaries take will be added to their income and taxed accordingly.  

Can I Continue To Make Pension Contributions?

Yes, you can continue to make pension contributions after entering flexi-access drawdown. However, it is worth noting that as soon as you begin to take an income you will then be bound by the Money Purchase Annual Allowance (MPAA).

Under MPAA rules, the maximum flexi-access drawdown annual allowance is £10,000 (the amount you can invest in your pension).

How Much Income can Be Taken From A Flexi-access Drawdown?

This is one of the major benefits of flexi-access drawdown. It gives you the flexibility to choose how much and how often you take money out of your pension pot.

That can either be through a regular income or on an ad hoc basis. Again, it is worth taking financial advice to ensure you make the most tax-efficient decisions.

Flexi-access Drawdown vs Flexible Drawdown: What’s the Difference?

Flexible drawdown was the precursor to flexi-access drawdown. The major difference between the two options is that flexi-access drawdown doesn’t require a minimum income from other sources.

Therefore, flexi-access drawdown is a much more universally accessible option for pension savers than its predecessor. 

When Was Flexi-access Drawdown Introduced?

Flexi-access drawdown was introduced on 6 April 2015 as part of the pension freedoms reforms.

As such, flexi-access drawdown became the preferred drawdown option, replacing capped and flexible drawdown options.