Investment DecisionsFlexible and Capped Drawdown present two very different options

When you are thinking about taking your pension and using it to provide you with an income in retirement there are essentially three options:

  • Buy an annuity
  • Convert the pension to capped drawdown
  • Convert the pension to flexible drawdown

It is the latter of these two pension options that I just want to cover in this blog.

Capped Drawdown

  • You can take this option any time after age 55.
  • You can take up to 25% of your pension fund as a tax free cash lump sum and invest the remainder.
  • It gives you the option of taking anywhere between 0% and 100% of the maximum income. That is, you could take no income.
  • There is a maximum income level that is pre-set for you and cannot be exceeded.
  • The maximum level is reviewed every three years up to age 75, then every year thereafter.
  • You can switch from capped drawdown to flexible drawdown in the future if you wish to.
  • You can make pension contributions to another pension after going into capped drawdown.

Flexible Drawdown

  • You can take this option any time after age 55 too.
  • You can take up to 25% of your pension fund as a tax free cash lump sum and invest the remainder.
  • You must have at least £20,000 of secure pension income (e.g. State Pension, Final Salary Pension) to qualify.
  • You may withdraw any amount of income at any time, it is a completely flexible fund.
  • There are no reviews once you go into flexible drawdown, the fund is yours to do what you will with it.
  • You cannot switch from flexible drawdown to capped drawdown.
  • You are not allowed to make any further pension contributions, into any plan, once in flexible drawdown.

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Blog by Jaskarn Pawar

Jaskarn Pawar is an experienced and award winning Chartered and Certified Financial Planner. He advises people all over the UK on financial planning and wealth management issues to help them reach solutions to fit their personal needs. You can contact Jaskarn on 01604 211234 or by e-mail on jaskarn@investorprofile.co.uk