Many are unaware of new legislation that makes for useful flexibility over pension funds, writes

NEW pension rules called Flexible Drawdown Plans have been introduced, offering personal pension holders the option to withdraw all of their pension fund. Certain individuals, who meet a minimum income criterion of £20,000 pension income in retirement, can gain access to 100% of their entire pension fund rather than the normal 25%.

“Certain professions may benefit more than others,” says Alan Wardrop of Johnston Gray & Wardrop. “Dentists who have a guaranteed superannuation pension from NHS earnings as well as private personal pensions are potentially the biggest winners.

“Many people are totally unaware of the new rules, which can open up a huge degree of flexibility – for both reducing their income tax bill and enabling access to their entire fund at retirement.

“They don’t appreciate that access to their pension funds is limited to a withdrawal of approximately 6% of the fund. Also, the entire fund could be lost when an annuity is purchased, with annuity rates typically at approximately 5% dependent upon age.

“One of the biggest problems that clients have has been the inability to access their entire personal pension fund – built up over many years – rather than lose the fund on their death or the purchase of an annuity.”

“The new rules allow individuals already in receipt of a ‘secure pension income’ in retirement, of at least £20,000, the ability to withdraw their other personal pension funds which have still to be taken. This new flexible income allows access to their entire fund. The term “Secure Income” relates to guaranteed pension income from final salary pension schemes, state pension benefits and pension annuities.

“The 25% tax free cash rule continues to apply, but now the remaining 75% is available to be drawn down over any period the client wishes, subject to the insurance companies’ own rules and technology. Many operate minimum fund values for example.

“Even if retirement is a long way off, it is a real incentive for people to make tax efficient personal pension contributions in the knowledge that all the money can be accessed at a later date. The earliest age for accessing pension benefits is age 55.

“I believe the opportunities for high earners and those individuals with a good final salary pension scheme are great. They could make real use of their allowances by making personal pension contributions just prior to retirement. This will result in them benefiting from receiving tax relief of up to 40% on their contributions going into their pension and being able to withdraw the entire fund in retirement.

“For example, a contribution of £8000 from a basic rate taxpayer into a personal