These include capped drawdown, flexi-access drawdown, uncrystallised funds pension lump sums (UFPLS) and phased benefits.
Clients can start taking benefits at any time from the age of 55, irrespective of whether or not they remain in employment. However, tax considerations may apply if benefits are deferred beyond the age of 75.
When drawing benefits they can normally receive a tax-free lump sum of up to 25% of the fund (subject to their lifetime allowance). This is known as a ‘pension commencement lump sum’.
The balance of the fund is then used to support their pension income, which can be paid directly from their self invested pension plan as drawdown. They do not need to purchase an annuity from an insurance company upon retirement, but of course can do so if they wish.
Drawdown allows your clients to retain control of their pension fund assets while receiving an income from them.
From 6 April 2015, all new drawdown is through flexi-access drawdown which enables clients to take advantage of the greater freedoms available with no limit on the income levels that can be taken. Clients already in capped drawdown at this date can continue as they are or can request to convert to flexi-access drawdown.
Clients will also have the option to draw lump sums from their fund as often as they require without the need to go into drawdown. Such lump sums are known as uncrystallised funds pension lump sums.
A client can draw benefits from all or part of their fund at any time from the age of 55 by investing the necessary portion of their fund in order to meet their requirements, including mitigating income tax liability.
For example, a senior employee may "retire" by gradually reducing their working hours. In this wind down period as earnings reduce, they can vest part of their fund each year to provide an element of tax free cash which - combined with income - could replace the missing salary.
Unvested funds remain fully invested as do vested funds until they are drawn upon under the capped drawdown or flexi-access drawdown options.
Dentons does not offer scheme pensions, annuities or other retirement options. We recommend that clients take financial advice in respect of their retirement options.
Whatever your retirement needs, one of our experts will be happy to discuss how we can help you achieve your goals.