New Rules For Drawdown Tax Free Cash And Annuities

New Rules for Drawdown, Tax-Free Cash and Annuities

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  Welcome to The Complete Pension Guide 2017!

For – setting up a new pension, reviewing your pension, approaching retirement, looking into auto enrolment, and buying your annuity or entering income drawdown

Annuities: Immediate Vesting Personal Pension Plan (IVPPP) – Compulsory Purchase Annuity (CPA) – Purchased Life Annuity (PLA)

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New Rules for Drawdown, Tax-Free Cash and Annuities

New Pension Reform and Income DrawdownNew Drawdown Option
Flexible drawdown is a brand new addition to pensions and enables investors to withdraw any sum of money from their pension pot once they retire. You must be over the age of 55 and have a secured pension income of £20,000 per annum before being allowed to use this option. The secured pension income can take the form of a pension scheme or state pension. Investment income is not included in this figure. Once you move into flexible drawdown, you will be unable to contribute to a pension scheme thereafter.

This is excellent news for those who have sizeable pension funds because they will be allowed access to the pension money any time they choose. You can also purchase an annuity to reach the £20,000 mark before moving your remaining fund to flexible drawdown.

Capped Drawdown
The maximum income that can be taken from capped drawdown will be approximately the same as that received from a regular annuity for a single person. The current maximum income level will fall slightly but there will be no minimum income, regardless of your age. The review period is also changing from 5 to 3 years with annual reviews put in place after the age of 75. With the old Alternatively Secured Pension (ASP) scheme, the income available was perpetually based on the fact the pension fund holder was 75. The new rules will use your actual age to calculate income available.

Capped drawdown is similar to the drawdown system already in place with a few subtle changes. These include the fact that the maximum income level before the age of 75 is to drop with this income level increasing after retirees turn 75. You are no longer forced to take an income after the age of 75. With your available income based on your actual age, you will now be allowed access to a higher percentage of your pension. Under the old rules, it always remained the same.

New Rules For Those In Drawdown
Those who are already in drawdown will not be affected by the new rules immediately though the government are implementing transitional rules. These individuals will be subject to the new rules when their next review is due or whenever they elect to transfer to a different drawdown plan.

This means you can benefit from the new regulations if you are already in drawdown and you will be allowed remain in drawdown beyond the age of 75. However, once the new rules take effect from the next review, your maximum income will be reduced.

Tax-Free Cash
You will be still be allowed to take up to 25% of your pension fund as tax-free income when your retire. This cash is available even if you set up an annuity or income drawdown and take no income. It was feared that this option may have been taken away from retirees but it remains virtually the same except for the fact that you can now withdraw this cash after the age of 75 if you wish.

The only major change in annuities is the fact that investors can now purchase them anytime after the age of 55. This is good news because lifetime annuities are the most secure and popular choice of investment. You can use annuities to meet the £20,000 secure income requirement which allows you to go into flexible drawdown.

Income drawdown is flexible but it is still a risky option because your money is liable to rise or fall when used in investment funds. Now that it is possible to purchase annuities after the age of 75, they will continue to be the most sought after choice for those investing their pension.