Considering claiming your pension?
Flexible drawdown is simply the general name given to the actual withdrawal of your money from your pension plan.
You saved hard all your life, have saved a pot of money and if you are over 55 you may now want to encash or claim your pension.
Where you want to draw your benefits early, remember, the minimum age is 55 so if you are promised anything earlier – it will probably be fraud!
If you decide against a flexi pension, you may be able to draw all the money as full lump-sum instead – but again, this is subject to complex rules when you claim.
There are many ways of withdrawing your funds but generally it is done using a combination of:
Tax-free cash (AKA Pension Commencement Lump Sum). You can usually take a maximum of 25% or one-quarter (1/4) of your pension pot as a tax-free lump sum. Be careful though – some older plans may allow you more!
Taxable income. The remainder of your fund (after whatever you have drawn as tax-free cash) is able to be drawn as either a lump sum or regular amounts (or a combination of both) but is taxable as income depending on your circumstances.
Sound simple so far? That’s where the simplicity ends. With tax free cash for example, you no longer have to take it all at once! You can now opt to “phase” your tax-free cash. What this means is, you can now take your tax-free cash in “phases” (multiple lump sums or as income) over a longer timescale. The same “phased” approach also goes for your taxable income (ie: you take income as a series of lumps instead). Think!… If you release your money slowly, the bit left invested should still be growing along the way meaning your cash should last longer!
You could also cash in or cash out your entire pension in one lump sum if you want but remember three-quarters of it will be taxed as income! (We are tax experts too!). Other rules on “small pots” also exist for up to 3 pensions of up to £10,000 each.
The problem is many older plans will not allow the flexibility of a modern arrangement and so will need to be switched out or transferred before you can enjoy them! At Financial Fortress, we have dedicated pension transfer specialists who pride themselves on being jargon free. Remember, we are completely independent advisers so we work with every single pension provider in the UK and beyond! Before cashing in your plan – get advice!
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