What is flexi-access drawdown?

Flexi-access drawdown allows you to take whatever income you need out of your pension pot while keeping the rest invested. From age 55 (57 from April 2028), you can take 25% of your pension as a tax-free lump sum (subject to a maximum of £268,275) while the remaining 75% will be subject to income tax upon withdrawal. 

How does someone access flexi-access drawdown?

Flexi-access drawdown may be available to you when you reach retirement age, depending on your pension scheme.

Any new drawdown arrangement since April 2015 will be flexi-access, unless you had a capped drawdown arrangement in place prior to this date and have not yet switched to flexi-access drawdown.

Transferring to this type of drawdown is simple, although not all money purchase schemes have to offer flexi-access. Some providers require the pension fund to be a certain size.

Flexi-access drawdown is one of the drawdown options available with the ii SIPP.

Advantages of flexi-access drawdown

• By keeping your pot invested and withdrawing only what you need, you will allow your pension to keep growing - unlike an annuity which provides a fixed income.
• The flexibility of taking only what you need means you control your income according to your plans and wishes.
• If you die before you have used up your pension, you can nominate one or more beneficiaries who will inherit your remaining funds.
  

Downsides of flexi-access drawdown

• By withdrawing whatever income you choose, you run the risk of running out of money earlier than if the money were in a stable fund such as an annuity.
• Since your pension remains invested, it also remains exposed to market risks. The fund value can rise and fall, with no guarantee of future performance.
• Once you start taking taxable income you will be subject to the Money Purchase Annual Allowance (MPAA). This means you can only contribute the lower of £10,000 or 100% of your income a year to your fund. If you only take your tax-free lump sum, you will retain the standard annual allowance for pension contributions (currently 100% of your UK relevant earnings subject to a maximum of £60,000 per year).  

What options are available on death in flexi-access drawdown?

Following the pension holder’s death, their beneficiaries have three options. They can take the pension out as a single lump sum, use it to buy an annuity which will give them a fixed income, or open a flexi-access drawdown and take money as and when they need it.

You can nominate one or more beneficiaries to receive all or a share of your flexi-access drawdown.

If you die under the age of 75, there is zero tax to pay on your remaining pension when taken out as income. If it is taken as a lump sum it will be tax-free subject to your remaining Lump Sum and Death Benefit Allowance (LSDBA). Any lump sum death benefits paid from funds that were crystallised before 6 April 2024 will not be tested against the LSDBA, since they will already have been tested against the old Lifetime Allowance (LTA). The balance over your remaining allowance will be taxed at your beneficiary's marginal rate of income tax. Read more about Lump Sum Allowances.

If you die aged 75 or over any lump sum or income payment from flexi access drawdown pension will be taxed at the recipient's marginal rate.

If you have no dependants, you can nominate a charity to receive your pension as a tax-free lump sum.