Benefit options and lifetime allowance

The basics

This analysis focuses on when benefits can be taken, summarises the main options available and also looks at the restrictions that apply.

• Taking benefits
• Safeguarded benefits

Emergency rate tax

An explanation of when emergency rate tax applies and how to get it back.

• Emergency tax and lump sum withdrawals

Income drawdown

One of the most popular options is income drawdown. There are two types: capped and flexi-access drawdown.

Flexi-access drawdown

Since 6 April 2015 any new drawdown plans must be a flexi-access drawdown plan. 

• What is flexi-access drawdown

Capped drawdown

New capped drawdown plans were only available until 6 April 2015. Existing plans can continue as long as the GAD limit is not exceeded.

• Capped income drawdown and review dates

Lump sums

Sometimes it's possible to exchange all pension benefits for a one-off lump sum.

• Triviality lump sums for defined benefits
• Small lump sums
• Uncrystallised funds pension lump sums
• Winding-up lump sums

Lifetime allowance

There is a maximum amount that can be taken from a pension scheme without being subject to a tax charge. This is called the lifetime allowance and fittingly the tax charge is called the lifetime allowance charge.

• Lifetime allowance
• Lifetime allowance charge

It is currently possible to protect benefits from a lifetime allowance charge as a result of the lifetime allowance being reduced. This protection has the effect of locking the lifetime allowance at a certain rate, meaning the reduction won't apply. However, there are conditions which, if broken, will result in protection being lost.

• Fixed protection
• Individual protection

Recycling

Once benefits have been taken, it is possible to re-use this money and pay it back into a pension. However, you won't be surprised to hear that there are rules and restrictions in place.

• Recycling of tax-free cash