Is anyone here in flexible drawdown?

[Deleted User]

I am in process of getting a top up annuity quote in order to bring secure income up to £20, 000 pa. I believe that once flexible drawdown is in place then it stays in place and it s up to me as to whatever amount I want to withdraw

Has anyone gone down that route?

System

Considering it.
Have you discovered an answer to the obvious question:

Is the £20,000 level guaranteed for life, or can the government increase it next year to say £21,000? Supposing you had finely calculated your annuity to produce £20,000, would you then be forced to stop flexible drawdown, or purchase a top-up annuity?

[Deleted User]

I have been speaking to a very respected firm and I`ll pm you re contact. He was recommended to be by a very well informed person who posted regularly on the site but she has since passed away

He says that flexible is for life once in place. He also said that it may be better to wait re annuity as yields are just creeping up but there was also the effect of men and women becoming equal. I believe it may make 1% difference but am not sure

He said that it would then be entirely up to me as to how much or how little I withdraw

I am going to go for it. New restrictions on how much is allowed to be drawdown come into place in a few months and flexible drawdown bypasses that restriction

anyway I propose to take money out and will pay tax at 40% but better that than paying 55% later in life. Then I can put cash into various stocks and shares isas for me and dh. I`ll always keep a safety net of fixed interest items in the sipp eg standard chartered up by 18% in capital value but giving an income of 12% year on year. I`ll be selling stocks when appropriate and re-buying into isas. Even keeping cash is better out of the sipp is much better value

Highwayman.

To clarify, the £20k minimum income requirement was set to be reviewed 5 years from inception so circa 2016. However, if you qualify now i.e. under the £20k rule, you are in for good, you cannot fail to qualify in future years even if the MIR is increased above your pension income.

How much income you draw is up to you - nil, all or somewhere I between and most firms will allow you to vary this throughout the year.

H

gadgetmind

kittie wrote: »

New restrictions on how much is allowed to be drawdown come into place in a few months

They do? Please elaborate. :eek:

calypso_rhapsody

Interesting Kittie that your adviser is suggesting waiting as annuity rates may be creeping up - rather contrary to the views reported in last Sunday's Times by a Deloitte researcher.

As i understand it, tighter liquidity rules for providers may serve to depress rates (and i think it was said that some are already reducing rates in anticipation of these new rules). However, for women the removal of differential rates for genders will be a benefit (though not for men!) .. so it's a tough one to call.

I am 55 in November so can't do anything until then but am watching the debate with interest! And like gadgetmind i'd like to know more about your comment about new restrictions ...

[Deleted User]

new GAD rules
http://www.pensionsadvisoryservice.org.uk/annuities-and-income-drawdown/income-drawdown-plans

doesn`t affect us yet but will do on next review ie 100% not 120%. It is already starting to affect people. We don`t drawdown 100% but want the option of complete flexibility now and post 75

person I am dealing with is well known and respected, however he will only be dealing with the annuity required to get to the £20k income mark. I manage the pension pot for dh and have done for several years now, to see it grow by 60% since I took it over. I don`t have an advisor as such

gadgetmind

kittie wrote: »

new GAD rules
http://www.pensionsadvisoryservice.org.uk/annuities-and-income-drawdown/income-drawdown-plans

Phew, that's a relief. Those are the existing rules that have been in place for well over a year.

You made me fear that there were further restrictions coming down the pike!

jamesd

kittie, your plan worries me. You wrote that you'll pay 40% income tax on the money. Are you actually retired and not working yet, so that 40% is your normal in retirement income tax rate?

I agree with the guidance that now does not look like a good time to buy an annuity and for a woman it looks like a particularly bad time because the requirement for ignoring gender in annuity rates from the end of this year may cause an increase in rates for women.

If your normal rate is 20% and there's no real possibility that your normal income needs would take you into the 40% range then your plan appears to be very unwise and an over-reaction to the reduced GAD limit multiplier.

A less painful way to get flexibility is to draw the maximum you can at the applicable GAD limit under capped drawdown and use that to try to reduce the amount in the pension pot over time. This preserves your option to use flexible drawdown later if necessary, but doesn't hurt you on the tax unless it does become necessary.

If that takes the money into 40% tax then for someone not working, £3,600 gross can be reinvested into pensions each tax year provided you're under 75 and flexible drawdown hasn't been used.

Paying money into a personal pension can be useful for at least two reasons:

1. Triviality rules from April 2012 mean that you can take out all of the money in up to two personal pensions of value up to £2,000 each under triviality. Even if the total value of your pensions is more than £18,000. You can still do this only once per person and within the same year and only from age 60. The first 25% is tax free, the remaining 75% is taxed as normal income. So this is a sort of mini-flexible drawdown option for up to £4,000 per person.

2. Tax. If you're getting 40% income tax relief on the way in and paying 20% income tax on the way out see a description of how good the tax gains can be for putting more money into a pension for those under 75.

Unless you will in the short term have your income significantly limited by the GAD limit change it seems better to wait until say 2015 to see if you pass the £20,000 test. There will be three to four work and state pension income increases between now and a possible change to the limit in 2016. Assuming 3% inflation-linked increases all you need as a guaranteed income today to pass the test in 2015/2016 (assuming three years of increases) is 91.5% of the £20,000 limit, £18,302. If all it takes to get over the limit now is a small annuity, you may be able to pass just by being patient for a few years.

Another way to get over the minimum without needing to buy an annuity is to defer the state pensions for a while. A person can do this even after they start taking it, once only then. The amount paid out by the basic state pension is increased by 10.4% a year pro-rated for each year of deferral. The full basic state pension is currently £5,587.40 a year. A one year deferral will increase this by £581.08. Plus some possible gain on the additional state pension. As you can see, combining this with inflation-linked increases can be an easy way to get over the £20,000 minimum if you're close to it.

Are you familiar with "scheme pensions" yet? Those are similar to normal drawdown pensions but an actuary calculates the life expectancy of the individual person and sets the drawdown percentage limit based on that. The GAD limit does not apply. A scheme pension is an approach that has been used by some to work around the GAD limit. However, in your case, if you're so close to meeting the £20,000 test, it seems more likely that a little patience will solve the problem for you, using flexible drawdown starting in three years instead of now. If the GAD limit actually does ever become a cap for you, it may not. I don't think that a scheme pension is likely to be your best choice.

I gave a list of GAD limit values for a man. For convenience here's the key part of the post.

Here's how £1,000 in a pension pot would have its income cap set for a man at various gilt yields and ages, 17/1/2012 as the reference date:

2.0% 55:£41 57:£43 58:£44 60:£46 65:£53 70:£62 75:£77 80:£101 85+:£140
2.5% 55:£44 57:£46 58:£47 60:£49 65:£56 70:£66 75:£80 80:£105 85+:£143
3.0% 55:£48 57:£49 58:£50 60:£53 65:£59 70:£69 75:£83 80:£108 85+:£147
3.5% 55:£51 57:£53 58:£54 60:£56 65:£63 70:£72 75:£87 80:£111 85+:£150
4.0% 55:£55 57:£56 58:£57 60:£59 65:£66 70:£75 75:£90 80:£115 85+:£154
4.5% 55:£58 57:£60 58:£61 60:£63 65:£70 70:£79 75:£93 80:£118 85+:£158
5.0% 55:£62 57:£63 58:£64 60:£66 65:£73 70:£82 75:£97 80:£122 85+:£161

On the 4.5 line the 65:£70 entry means that at a 4.5% gilt yield a man would be able to take up to £70 income a year per £1000 in the pension pot. It's particularly notable how the age increases the cap and may make it pointless for you to use flexible drawdown because the GAD limit at increasing ages may keep it above your income need anyway.


So what I suggest you consider is:

1. A little patience, to let inflation-linked pension increases get you over the minimum.
2. A little deferring of the state pensions to help to get you over the minimum if just waiting for a little while won't do it.
3. Taking out the maximum under capped drawdown and reinvesting any unneeded money in a pension (for any higher rate portion, and only up to age 75) or S&S ISA. Using this to smooth out any variations in capped drawdown limits.
4. Let age take care of increasing the GAD limit and stay in capped drawdown unless you have some need for more income than the limit allows.
5. Maybe go into flexible drawdown just before reaching 75 and the ban from that age on making any more pension contributions.

For simplicity here I generally wrote "you" meaning the pension holder, even though I do know it's your husband, not actually you, who has the pension.

[Deleted User]

jamesd, thank you for your very detailed response and for taking the time to write it. Lots to read and digest. We won`t be doing anything in a hurry. I appreciate your post