Flexible retirement planning

More investors are now able to take their entire pension as cash. Flexible drawdown allows you to take up to a quarter of your pension tax free as a lump sum, and then unlimited taxable withdrawals if set criteria are met.

There are two reasons more people have become eligible for flexible drawdown:

Firstly, you have £20,000 secure pension income
The main requirement is having at least £20,000 a year of secure pension income. You must have received, or be due to receive, the full £20,000 in the tax year you enter flexible drawdown.

The tax year runs from 6 April one year to 5 April the next. If your qualifying income started part way through a tax year but did not reach the £20,000 threshold then you would not be eligible to enter flexible drawdown until the start of the following tax year. Conversely, if your qualifying income would reach the threshold if projected forward to the end of the tax year in which it began, you would be eligible for flexible drawdown immediately. For example, if your qualifying income in the 2013/14 was £24,000 per annum but begins on 27 September 2013 you would only receive £14,000 in the current tax year and therefore only become eligible on 6 April 2014 when the next tax year commences. If your qualifying income in the 2013/14 tax year was £24,000 per annum but began on 27 June 2013, you would receive £20,000 in the current tax year and therefore be eligible straight away.

Secondly, you have finished making pension contributions
You will only be eligible for flexible drawdown if you haven’t accrued any benefits under a final salary scheme or contributed to a money purchase pension (or had contributions made on your behalf) during the current tax year. If you have been an active member of a pension scheme as described, you will not be able to enter a flexible drawdown arrangement until 6 April 2014.

Flexible drawdown is a complex product. If you are at all uncertain about its suitability for your circumstances, you should seek professional financial advice. Your income is not secure. Flexible drawdown can only be taken once you have finished saving into pensions. You control and must review where your pension is invested, and how much income you draw. Poor investment performance and excessive income withdrawals can deplete the fund.