For expats that have transferred their U.K pension into schemes such as a QROPs. Depending on the jurisdiction it will have a flexible access drawdown. Schemes, such as Malta, allow flexible access drawdown. I want to explain the process for flexible access drawdown for both expats and those in the U.K. In this article, I will cover how to plan accordingly and the fees with drawdown options.
What is a Drawdown on a Pension?
In previous years, flexible drawdown pensions were not possible. However, as the changing dynamic world of the U.K pension industry more people are opting to use flexible drawdown pensions, to have more control over their pension.
A drawdown is when you withdraw from your pension pot. Once, you reach the age of 55 you are entitled to take 25% tax-free from your PCLS.
25% is tax free and the rest will be classed as income at the taxable at your income tax rate.
On defined contribution (DC) schemes you can get 40,000 GBP classed as an annual allowance when you withdraw.
If you want to start drawing on your pension you will reduce the tax relief on your pension. This is called, money purchase annual allowance.
Flexible income drawdown allows you to take as much or as little of the pension pot as you want. Although, with some defined benefit (DB) schemes you do have certain restrictions on how often and how much you can withdraw. To find out more information I would speak to your DB pension provider regarding the specific details when wanting to withdraw from a final salary pension.
Do remember, that although you can withdraw as much as you want, this was made in 2015 when the pension freedom act was introduced. You will need to fund this pension pot for the rest of your remitment. Here is an example of how it might be difficult with some simple calculations.
Note this has not taken in any specific circumstances and if are looking for individual advice I would seek specialist advice that is tailored to your situation and finances.
Example of a Pension Drawdown:
Jack, has 250,000 GBP pension he is 55 and takes his 25% tax free lump sum of 62,500 GBP.
This takes his pension pot to 187,500 GBP if Jack then decides to put into an annuity he has 187,500 GBP to last Jack throughout his retirement.
Jack is still working he has 35 years contribution to NI pension presently at 175.20 GBP a week (that is currently in a triple lock). Which.co.uk currently states that you will need 25,000 GBP a year as of 2019 to live on.
This equates to 2083 GBP a month. Jack’s current state pension pay’s him 700.8 GBP every 4 weeks. If we take a non-inflation figure and expect that this pot will need to last 25 years. it will presently fund 7480 GBP a year. If you take Jack’s, state pension and take the fact that he leaves his pension in an annuity to keep in line with CPI inflation he will be well short of the guide of a modest retirement amount at present if he has no other sources of income or savings.
This is a simple calculation with other pensions, inflation, drawdown amount, and protection elements not considered. But highlights some of the problems with flexible drawdown that you can take assess too quickly. You are likely to need more than you think when you retire and taking too much too early can be detrimental.
You do have income calculator this is an example from the U.K government pension website
https://www.pensionwise.gov.uk/en/adjustable-income
Please don’t forget that when arranging your pension and drawdown there can be some charges. You need to be aware of what it is going to cost you to be in the investment, platform and if it is going to cost you to withdraw money! You need to know the figure so that you can offset it against your gains.
You can change how much you want to withdraw, but you want to make sure that the amount you withdraw is consistent so that you know that you have enough to live in your retirement.
If you want to read more on pensions, then please visit our article section dedicated to pensions: Pension Articles
Most pensions have limited providers, the cost does vary but is the funds that fit your circumstances. If you require more information please feel free to get in touch.
