Is your pension flexible?

From 6 April 2011 the Government introduced a series of changes to the rules that affect certain aspects of pensions.   One of the changes introduces the concept of “Flexible Drawdown”, a facility that allows certain individuals to manage a pension plan.  In essence, Flexible Drawdownallows you to withdraw as little or as much income from your pension fund as and when you need it.

Gareth Tregidon

Gareth Tregidon

The history of pension drawdown

The concept of leaving a pension plan invested and drawing from it to provide an income in retirement was first introduced in 1995.  The aim was to provide a facility where an individual could delay the purchase of an annuity up to age 75 (something that has also changed from April 2011).

Several changes to the rules have occurred since that time, including the decision in 2006 to re-name this type of contract Unsecured Pension (USP).  Although this was the official name for these contracts up to April 2011, the vast majority of people still know them as simply “drawdown plans”.

So what’s changed

With effect from 6April 2011 anyone that holds an existing Unsecured Pension (USP) or Income Drawdown plan will automatically fall under the new pension rules.  Transitional rules are in place for existing drawdown holders, including the ability (if you are under age 75) to remain under the existing rules (and in particular, the income limits) until the end of your current 5-year review period.

The legislation that took effect in April 2011 introduced Flexible Drawdown.  As mentioned above, this allows certain qualifying individuals the opportunity to manage the withdrawal of money from their pension fund in a far more flexible manner than previously.

In order to qualify for Flexible Drawdown you have to be able to declare that you are already receiving a secured pension income of at least £20,000 a year, and have finished saving into pensions. 

What is secured income?

Secured pension income is a strictly defined term, and broadly means:

  •        A company pension being paid to you, either from the UK or Overseas; or
  •       An annuity being paid to you (from a personal pension or company pension), either from the UK or Overseas; or
  •        A State pension being paid to you, either from the UK or Overseas.

The amount of secured pension required will be known as the Minimum Income Requirement (MIR), and my understanding is that the income taken is the gross annual amount (i.e. before any income tax is deducted).  The initial MIR limit of £20,000 may be increased in future; however you should only have to provide evidence that you have this level of income at outset.

You should also note that income withdrawn from a USP / drawdown does not count towards the MIR limit, as such income can be altered by the individual.

Obviously pension advice cannot be given in a short blog, so we also have a Flexible Drawdown helpsheet which you can download.  Alternatively contact us and arrange a free meeting to review your pensions and see if you can benefit from a more flexible income in the future.

You can also get more advice by following @bevanbuckland on twitter or registering for our email newsletter

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