Brian McLean IFA

Capped Drawdown and Flexible Drawdown

Capped Drawdown

This option was introduced in April 2011 and replaces 'Unsecured Pension' (USP) and 'Alternatively Secured Drawdown' (ASP). It is often referred to as 'income drawdown' this flexible method of providing retirement income can have many benefits for those who do not need guaranteed pension income. The pension fund remains invested and the member draws a pension from their own fund within certain prescribed limits up to the age of 75. This option typically appeals to those who feel comfortable with continuing investment risk to their retirement income and can have improved death benefits for any survivors

Flexible Drawdown

This option was also introduced in April 2011 and for those individuals over the age of 55 who can demonstrate they have guaranteed income of £20,000 per annum minimum (called the Minimum Income Requirement, or MIR), they will be able to drawdown an unlimited amount from their pension funds. The amount drawn will be treated as income for tax purposes.

Having entered 'Flexible Drawdown' there will be no restrictions on the amount an individual can draw from a pension fund and the 'Capped Drawdown' rules cease to apply.

The income that will count towards the MIR includes basic state pension, additional state pension, level annuity income and scheme pensions. Purchased life annuities, other state benefits and drawdown income do not count towards the MIR.

In the same way as 'capped drawdown, this form of flexible retirement provision has an element of investment risk and may not suit everyone, especially those who prefer guarantees in their retirement strategy.

To be eligible for flexible drawdown an individual must have ceased to be an active member of any defined benefits scheme before an election can be made and this option may suit someone who wishes to take a higher level of income than may be available from 'capped drawdown'.