The SIPP and SSAS expert believes partial flexible drawdown offers a strong alternative to capped drawdown for retirees in need of greater flexibility.
It is available to all pension investors who meet the Minimum Income Requirement of £20,000 a year. This can include state pension, income from a final salary pension and annuities.
Mary Stewart, Sales and Marketing Director, says:
“Partial flexible drawdown offers the retiree more control and eliminates the limits imposed by GAD rates, which are currently at an all-time low. It simply means the investor can crystallise a portion of their pension fund, leaving the rest uncrystallised and thus ringfenced from certain tax charges.”
Each time the client crystallises a part of their pension fund, they are entitled to take up to 25% of the amount as a tax-free lump sum. The tax-free cash can be used to make up part of the income stream, reducing tax liabilities. This can be particularly useful for pension investors who wish to keep their pension income below the next tax threshold. With careful planning, clients crystallise only the portion of the fund that they need and then withdraw it, leaving the remainder of the fund invested and uncrystallised.
Partial flexible drawdown can also reduce the tax charge on death for anyone who dies under the age of 75.
Mary says: “The recovery charge of 55%, introduced in April 2011, has made clients more aware of their need to minimise tax burdens and protect their wealth for the next generation. If no benefits have been taken on a segment of the fund, no recovery charge can be levied on that portion, meaning funds can be paid out free of tax, should the client die before age 75. ”
Hornbuckle Mitchell also anticipates a rise in the number of pension investors moving into flexible drawdown in 2013 when the top rate tax level is slashed to 45%.
“A number of Advisers have told us they are waiting until April 2013 for clients with substantial pension savings who wish to withdraw the whole fund.
“The flexible drawdown process is really very simple, so we would urge advisers to explore this option with their clients. It could prove the perfect solution in today’s tough economic environment.”
