A simple guide to pension drawdown rule changes

Andy Stevens / 23 February 2015 ( 11 June 2015 )

The rules governing how much money you can withdraw from your pension pot undergo a radical shake-up from April 2015. So how could the changes to what is know as 'drawdown' affect you? And what is drawdown and what, if anything, do you have to do?

What is drawdown?

Drawdown is the process of getting your hands on the money you've saved into your private pension pot, ie, the 'drawing down' of funds.

When are you eligible for the drawdown option on your pension?

The new pension rules began on 6 April, 2015. You have to be 55 or above - and with a private pension - to qualify.

Guide to the different types of pension.

How do the new pension drawdown rules affect you?

Under the rule changes, you can take all of your pension pot as a lump sum.

What is income drawdown?

The clue is in the name. By choosing to access your pension via income drawdown, you can take an income for yourself from your pension, while leaving the remainder in investments, usually on the stock market.

There are two different types of income drawdown you may have heard of, explained below:

What is flexible drawdown?

Flexible drawdown gives you, well, flexibility to take out as much money as you wish from your pension pot.

You'll receive the first 25% you withdraw tax-free. The remainder is taxable at your normal income tax rate.

And there is no limit to the amount of annual income you choose to take from your fund. Flexible drawdown is available to those of you who no longer pay into a pension.

To benefit from flexible drawdown, you used to have to prove you had additional, separate income of £12,000 a year or more. But this rule, known as the Minimum Income Requirement, was scrapped in April 2015 - there are no longer any restrictions.

What is flexi-access drawdown?

A term you'll soon start to hear a lot is flexi-access drawdown. Don't be phased by this: flexi-access drawdown or flexible access drawdown is just another name for flexible drawdown.

What is capped drawdown?

Capped drawdown is a pensions drawdown product which sets a maximum limit on the amount you can withdraw every year, subject to the size of your pension pot.

The capped drawdown limit, based on an equivalent annuity (which converts your pension fund into a regular income for life), was raised from 120% to 150% in the 2014 Budget.

As of 6 April, 2015, capped drawdown is no longer available to people accessing their pension pots for the first time.

Confused by all the pensions changes? Read our guide to the new rules that came into effect in April 2015. 

The opinions expressed are those of the author and are not held by Saga unless specifically stated.

The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.