Drawdown Options
There are now two types of income drawdown - 'capped drawdown' and 'flexible drawdown'.
Capped and flexible drawdown are availible for individuals from age 55 and there is no upper age limit because the Alternatively Secured Pension has been abolished. Any income you take is taxed as earned income in the year it is paid.
Capped Drawdown
Capped drawdown is similar to the existing drawdown rules. The maximum amount of income that can be taken each year is set by the legislation and calculated with reference to the Goverment Actuary's Department (GAD) tables. This is known as the GAD max.
New GAD tables have been introduced.
Individuals have the flexibility to choose to take an income between 0% and 100% of the GAD max - this is a change from the limits pre 6 April 2011 of between 0% and 120% of the GAD max.
GAD limit review every 3 years
For individuals in capped drawdown, their maximum income limit will have to be reviewed at least once every 3 years when they're under 75 or once every year once aged over 75.
Flexible Drawdown
Flexible drawdown is a new way for individuals to take as much income out of their pension fund as they want. There is no maximum income limit.
To qualify for flexible drawdown individuals must meet the Minimum Income Requirement (MIR). The MIR states that they need to have at least £20,000 gross per year in guaranteed pension income. This can include state pensions, pension annuities and pensions from an employer's occupational pension scheme.
The MIR will be reviewed by the Treasury at least once every 5 years. However once an individual has met the MIR their secured income doesn't have to meet any increased requirements. This means any guaranteed pension income can be set up on a level payment basis without the need to automatically increase in value.
The lifetime allowance
The lifetime allowance (the maximum limit for the total value of an individuals pension funds) will reduce from £1.8million to £1.5million from 6 April 2012. Any funds over this limit will be taxed at 55% for a lump sum or 25% if taken as a pension.
Tax Rules on Death
The tax rules affecting what happens on death when in income drawdown have changed too. The tax treatment depends on the individuals age when they die and whether or not they have taken any tax free lump sum and / or income. The headline is that on death in drawdown after age 75 the punitive 70% tax charge and inheritiance tax liabili9ty have both been removed.
