For many people entering retirement, deciding how they wish to take their pension income can be a difficult question.
Since the Pension Schemes Act 2015, clients have several ways to access their pension, and ensuring that you understand the options available and select the option which matches your lifestyle goals is key to maximising your potential in retirement.
One of the options available is Flexi-access Drawdown. Flexi-access drawdown provides the ability to tailor your retirement income to meet your needs and may offers potential tax planning opportunities to some individuals
Here are some of the key benefits associated with Flexi-access Drawdown.
- Tax- free pension commencement lump sum.
You can take a tax-free lump sum of up to 25% of your pension pot. This can be taken either as a lump sum or segments throughout retirement. This can be utilised to support your income or fund large one off spends to support your retirement goals. Note: this option is available through most ‘standard’ pension vesting options. It is not unique to FAD
- Flexible income
Unlike an annuity, Flexi-Access drawdown enables greater flexibility in how pension income is paid. You can choose to take regular income from your pension, or ad hoc income as required.
This means you can tailor your income to meet ongoing changes throughout your retirement, and the ability to adjust ongoing income ensures your pension can reflect any lifestyle changes as they arise.
Suggested: However, accessing income via Flexi-Access drawdown also carries the risk of running out of money in the later years of retirement if too much income is taken in earlier years. FAD should only be undertaken in conjunction with careful cash flow planning.
- Leaving a legacy
Should you die with any unused Pension remaining, you may nominate beneficiaries to receive any unused Pension benefits. This can be family members such as your Spouse/Partner, Children or Grandchildren. You can even nominate your favourite charities to receive part of your pension.
How the pension proceeds are taxed will depend upon the age at which you die. If you pass away prior to age 75, the proceeds are generally paid tax free. Above the age of 75, the proceeds are taxed at the beneficiaries’ marginal rate of tax.
