Share
What is flexi-access drawdown?
Flexi-access drawdown (FAD) replaced the capped and flexible drawdown options for individuals setting up a new drawdown plan from 6 April 2015.
Any existing flexible drawdown plans automatically became FADs on 6 April 2015.
Key facts
- Flexi-access drawdown is only available from plans that allow drawdown.
- There is no limit to the amount of income that can be taken.
- The money purchase annual allowance limits the amount of future pension savings that can be made.
Who can use flexi-access drawdown?
FAD is only available from plans or arrangements if the scheme rules allow.
The normal minimum pension age rules apply.
What tax-free lump sum can be paid?
Normally a tax-free lump sum of up to 25% of the crystallised fund is payable (if required) each time crystallisation takes place. If the plan has protected tax-free cash the normal rules apply and the full fund must be crystallised. The remaining fund will be designated to provide drawdown, which may be taken as a regular income or on an ad hoc basis as required.
How much income can be taken?
The amount that can be withdrawn from a FAD is not subject to any limits.
Any income amounts withdrawn will be added to the individual’s taxable income in that year.
Can further pension contributions be paid?
Individuals in FAD may continue to make pension contributions, however, if they take any income they will be subject to the money purchase annual allowance of £4,000. Any contributions in excess of this will be subject to the annual allowance charge which will effectively remove the tax relief on the contribution.
Is there an annuity option?
Individuals with FAD plans may choose to purchase an annuity with the proceeds of their FAD plan at any time.
They can also use some or the entire fund to buy a short-term annuity. This type of annuity cannot be paid for more than 5 years but it can decrease whilst in payment.
What are the options on death?
On the death of the original plan holder, the nominees will have the option to continue FAD as will their successors.
The remaining funds can also be paid as a lump sum or be used to buy an annuity.
As with all post 6 April 2015 death benefits, it is the age of the plan holder at their date of death that drives whether there will be a tax charge. More information can be found in our article Death benefits from April 2015.
Income payments
Whether income tax is deducted from any income depends on the age of the plan holder, nominee or successors when they die.
- If the plan holder dies before age 75 no income tax will be deducted from the beneficiaries income payments - FAD or annuity.
- If the plan holder dies age 75 or over the income payments, FAD or annuity will be added to their other income in that tax year and be taxed accordingly.
Lump sums
- Plan holder dies before age 75 the lump sum will be paid tax-free.
- Plan holder dies age 75 or over the lump sum will be added to the recipient’s taxable income and taxed accordingly.
Further information
HMRC Pensions Tax Manual - PTM062730: Member benefits:flexi-access drawdown
Further information
HMRC Pensions Tax Manual - PTM062730: Member benefits:flexi-access drawdown
Disclaimer
The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. Also it may not reflect the options available under a specific product which may not be as wide as legislations and regulations allow.
All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.