Flexible Drawdown Consultation

Published / Last Updated on 24/03/2014

Drawdown Consultation: Flexible Drawdown

by Ashley Clark, Director - August 2010

There is currently a requirement when you retire to buy an annuity income (known as secured income) with an insurance for your pension fund by the age of 75 at the latest even if you are in a special drawdown plan called an Unsecured Pension (USP).

In some cases, people can continue with the non-annuity USP route after age 75 called Alternatively Secured Pensions (ASP) - but these have huge tax penalties on death.

Lose it on death either way:

  • Either way, if you die and have an annuity (secured income) you may lose all your money, or if you die with USP a tax charge up to 35% and with ASP, your estate may get taxed by over 80% ......
  • Understandably, many people avoid paying too much into pensions.  Hence this proposed change in the law.

Removing the need to buy an annuity at age 75: Summary

No Compulsory Annuity - removing the need to buy an annuity by age 75 wef 6 April 2011


Lifetime allowance test at 75 will remain (you are taxed if your pension funds are too big in total - currently £1.8m).

Current Drawdown Rules:

  • Unsecured Pension (USP) to remain after age 75.  Current caps of the following are subject to review:
  • USP - maximum income between 0% and 120% single life annuity before age 75 and or 
  • Alternatively Secured Pension (ASP) - maximum income between 65% and 90% single life annuity after age 75 - to be abolished from April 2011

Capped Drawdown

  • Much the same as now at 120% for all ages, even after age 75 unless pass Minimum Income Requirement (MIR) test

Flexible Drawdown

  • If MIR proved then you can have “Flexible drawdown” - unlimited drawdown

New Minimum Income Requirement (MIR) test at the point flexible drawdown will be set – in short if you can prove your income is above the (MIR) then you will be allowed flexible drawdown.

MIR Amount

MIR Test - what will be counted as income?

  • Pension income in payment secured already by an annuity, guaranteed for life and some form of inflation protection
  • State Pension income in payment
  • Investment income or other income sources may NOT be included for MIR test to be allowed flexible drawdown

Other points:

Tax Free Cash sums
will be allowed to taken after age 75 if you have not taken any benefits from that pension i.e.  it is not crystallised.

Death Benefits

  • Any lump sum death benefit for a non-crystallied or non-drawdown plan will be tax free as normal even if after 75 (currently only up to 75)
  • Any lump sum death benefit for a plan in drawdown will still be subject to the usual tax charge of 35% (as is currently the case)

Tax relief only available on pension contributions before age 75

Triviality rules will be allowed after age 75 (the ability for small pensions of 1% or less of the lifetime allowance to be taken as lump sum)

Contact us today and book your flexible drawdown consultation.

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