Neil McGillivray, head of technical support at James Hay Partnership, offers a case study of when flexible drawdown can be used to maximum effect...
With an ageing population, record low gilt yields, increased flexibility and a choice of income options, the need for ongoing advice throughout an individual’s retirement has never been greater.
It is therefore important advisers ensure they continue to keep abreast of all developments and planning opportunities that are available to them.
The introduction last year of flexible drawdown, and the much-feared 55% special lump sum death benefit charge, heralded speculation of great changes.
So, when should you use flexible drawdown?
For those fortunate enough to be able to meet the minimum income requirement, the ability to strip out their pension fund to avoid the 55% charge was well publicised, as was the counter argument that retaining as much of an individual’s fund uncrystallised up to age 75 could prove extremely attractive.
So what has actually happened over the first 12 months?
The answer appears to be very little.
In the case of the James Hay Partnership, which has approximately 16,000 pension funds in drawdown, only 220 individuals have opted for flexible drawdown and of those, a mere three pension funds have been stripped. This is in line with the industry norm based on information given by other SIPP providers.
Interestingly, the main reasons for choosing flexible drawdown appear to be the ability to take income as and when required and avoiding the cost of triennial or annual reviews. No doubt these are sound reasons but the tax planning aspects, at least in part, appear to have been ignored.
One positive aspect is the low number of individuals stripping their funds. This was given much hype when flexible drawdown was first announced as a way of avoiding the 55% charge on death.
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