Pension Flexible drawdown

Posted on 09/03/2017 at 10:43

Clients are reminded that pension investors aged 55 (57 from 2028) are able to withdraw their pension as a lump sum. However, clients should be aware that only the first 25% will be available to them tax free and the rest will be treated as taxable income, taxed at their marginal rate of tax. So if you are a basic rate tax payer, then please remember the drawdown will be added to your income and hence that may push you to a higher rate tax payer, taxable at 40% or 45%. Please note that this 25% tax free amount no longer has to be taken at once on retirement. You can take out smaller amounts over time, totalling to the 25% tax free.

Pension pots are also becoming a tax efficient way to pass funds to your loved ones. Provided the limits are not reached (see Issue 52), then a combination of Inheritance Tax free and potential tax free withdrawals make this attractive.  From April 2015, you have been able to nominate who will inherit your pension pot and if death occurs before you are 75, then whoever you nominate can access the funds at any time tax free. This nominated beneficiary can in turn appoint their own successor meaning that the funds can be used by the generation that requires it most.