A Flexible Approach to Retirement Income
Flexi Access Drawdown (FAD), or pension Flexi Access drawdown, is the most frequently chosen retirement option. Over time it has also been called Flexible Access Pension Drawdown and Income Drawdown.
It allows people to choose how much their pension they want each year. This is a great advantage, yet it also carries the potential risk of running out of money before they die.
If managed properly, FAD can be a beneficial way to manage retirement funds and ensure a steady income during retirement.
How does Flexi Access Drawdown Work?
Pension freedoms were introduced on the 6th of April 2015. You now have the option to draw down income from your pension in a more flexible way than before. Flexible Drawdown (FAD) allows you to take out varying amounts of money whenever you choose, usually beginning at age 55, and with up to 25% tax-free lump sum.
Not all providers offer FAD, so checking with your provider first is essential.
As life becomes more complicated, people increasingly recognise the need for retirement income that can adapt to their situation. FAD offers the chance to review and alter regular income or take out one-off payments, which is an appealing option for pensioners.
Furthermore, money can be left inside the FAD plan, allowing it to gain value over time. This has the potential to boost the income that can be taken out of pensions, making it a beneficial choice.
You also have the option to buy a pension annuity in the future if you want to.
To access a set amount tax-free, you must first convert four times the amount you are looking to receive into your pension pot.
Then, you must put the remaining 75% into a Flexible Access Drawdown account to get your full tax-free cash.
This account allows you to withdraw any amount in the year without a limit, but the withdrawal income will be taxed.
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Flexi Access Drawdown Benefits
Drawdown plans provide a convenient way to access pension savings, allowing for varying levels of retirement income that can be adjusted to suit individual needs.
This flexible access is an attractive pension option for many, enabling them to take ad-hoc lump sums or regularly alter their regular income amounts.
Potential for Capital Growth
Staying invested in the FAD plan allows for potential growth, though there are risks in the short run. Over time, this can increase the income you can get from your pension, which is essential for a secure retirement. We recommend getting pension advice if you are looking at Income drawdown.
Pension Death Benefits
Within your FAD plan, you can nominate beneficiaries who will receive the benefits when you die. This is not limited to dependents; more than one beneficiary can be chosen. When your beneficiary dies, they can also pass the plan down to their successors.
You can Phase your Tax Free Cash.
With Flexi Access Drawdown, you can access part of your pension fund annually. This is called Phased Drawdown, which enables you to receive smaller amounts of tax-free cash yearly, thus allowing you to benefit from some of your income without incurring income tax.
Is Flexi Access Pension Suitable?
Flexi Access Drawdown has revolutionised retirement planning, giving retirees increased autonomy. Yet it may not be the best choice for everyone as it comes with a risk due to its intricate tax rules. Contact us to determine if it is right for you; we can advise on the optimal pension plan. If you’d like to explore other options, Pension Wise, the Government’s website, is also available.
