Pension Drawdown
Clients Frequently asked questions
Do I have to move my whole pension pot into drawdown?
Some personal pension plans will allow you to move your pension savings into drawdown in stages – known as ‘phased drawdown’. Phased drawdown means that you do not have to take all your tax-free cash in one go. This can be useful if you plan on cutting back your working hours, or need to control your income tax liability.
Can I still pay into my pension once in income drawdown?
Yes. Many personal pensions will be split into two parts – a savings element where you can make further pensions contributions, and an income element where income withdrawals are made from. However, it is vital to be aware of the Money Purchase Annual Allowance (MPAA), which limits how much you can contribute to a pension once you have made flexible withdrawals from a plan.
How much tax-free cash can I take?
Most pension schemes limit the amount of tax-free cash (Pension Commencement Lump Sum) you are allowed to take, to 25% of the value of the pension. However, there are some occupational pension schemes; section 32 buy out policies or deferred annuity contracts that have an entitlement to more than 25% tax-free cash. Please speak to your financial adviser if you think you have one of these pensions.
How old do I need to be before I can start drawdown?
The normal minimum pension age under a registered pension scheme is currently 55. However, there are certain instances where a member may be able to access their benefits before age 55, such as if they are in severe ill-health or have a protected retirement age due to their occupation.
Are you able to drawdown on all types of pensions?
There is no requirement for any pension provider to offer flexible-access drawdown. Additionally, if you have benefits in a defined benefits scheme and you wish to take advantage of flexible-access drawdown, you would need to give up these guaranteed benefits and transfer your pension. This decision should be considered very carefully as to whether it is in your best interests.
Can I drawdown my defined-benefit pension scheme?
Defined Benefit pension schemes are designed to provide you with a guaranteed income payable for life. They, therefore, do not offer flexible-access drawdown.
Can I still buy an annuity if I’ve already started to drawdown?
You can use your remaining drawdown fund to buy an annuity at any time, although some insurers will set an upper age limit, typically 95.
Can I have multiple drawdown plans?
Yes. There is no limit to how many drawdown pension plans you have in place. However, it worth seeking financial advice to see if there would be any benefits in consolidating multiple drawdown pots.
Is pension drawdown income taxable?
Once you have withdrawn the maximum tax-free cash from your pension, any income that you withdraw will be subject to income tax. If you have some of your Personal Allowance left (currently £12,500 for 2019/20), then income withdrawals from a drawdown pension will count towards this allowance. The amount of tax you pay depends on your total income for the tax year and your tax rate.
Can I run out of money when in income drawdown?
Unlike defined benefit pension schemes or pension annuities, there are no guarantees with a drawdown pension. Your money is invested so its value can fall as well as rise. Additionally, if you withdraw too much income, your pot could run out.
What happens to your drawdown pension when you die?
If funds are remaining in your drawdown pension when you die, this can be passed on to your nominated beneficiaries. You should complete an expression of wish form with the pension provider so that they know who you would like to consider to receive your pension benefits when you die. Please speak to your financial adviser for more details.
What can Pension Works give advice on?
Pension Works can advise on most types of pensions including final salary pensions except unfunded public sector pensions which include the below:
- Teachers
- Firefighters
- NHS Workers
- Police
- Armed Forces
- State Pensions
Although you cannot move these types of final-salary pensions, they are seen as the very best employee benefit pensions in providing a generous guaranteed income for the rest of your life.
