Take-up of flexible drawdown has been lower than expected. Simon Nicol, pensions director at Broadstone, reveals how the retirement option can benefit your clients...
For many of my years as an IFA I heard clients complaining about the restrictions placed on them when they wanted to access their pension funds.
The advent of flexible drawdown appeared to give that freedom, so why has take-up been so low? Is it that clients do not really want full access to their pensions, or are IFAs missing a trick by not utilising flexible drawdown to its best advantage?
It may be that the prospect of a 50% income tax charge on substantial withdrawals has put many clients off but there are certainly ways in which the flexibility offered can be put to good use. The following examples assume the pension holder has already qualified for flexible drawdown.
Are advisers missing a trick on flexible drawdown?
Drawdown income levels
The reduction in maximum income under capped drawdown faced by many clients is well documented, with low investment returns and even lower gilt yields reducing maximums by significant amounts. Clients who may be forced to utilise other capital for income if the capped drawdown amount is reduced may prefer to maintain their income from the pension through flexible drawdown.
One of the main advantages and indeed, for many, the point of phased drawdown is to maintain the maximum amount of pension fund in a favourable uncrystallised status. Flexible drawdown can enhance this process, quite dramatically, over time.
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