Flexible drawdown plans will allow individuals to access (taxed) lump sums in excess of the capped limit but only when a minimum income requirement (MIR) has been met. Flexible drawdown is just one of the proposals put forward.
The government intend to change the UK pension rules and feedback is due on the consultation by 10 September.
The main intention of the review of the pension rules is to recognise that people are living longer and therefore need their income to last longer in retirement. The intention is not to remove annuitisation but to add additional options that retirees may choose.
Flexible drawdown: sample case study
Taken from the government’s consultation paper
Mr A retires aged 65 with a defined contribution pension. He decides to take 25% of his pot as a tax-free lump sum on retirement and invests the remainder in a capped drawdown arrangement.
At age 75, he decides to draw down a lump sum to pay for urgent repairs to his house. This requires him to secure a minimum income. He leaves the balance of his fund invested until his death at age 85.
After deducting a tax relief recovery charge, the unused funds remaining in his capped drawdown arrangement are passed on as a lump sum to his dependants.
It is strongly recommended that you seek independent financial advice if you are considering flexible drawdown as an option for retirement income.
