Back in 2013 I decided to draw down my pension to fund my retirement. However, the new income drawdown rules seem like a much better deal, so I was wondering if I could move my old drawdown pension to flexi-access drawdown?
- Tom Conner
The Old Drawdown Rules
Given that drawdown was first introduced more than 20 years ago, it’s not surprising that many people who entered into drawdown pension contracts before the April 2015 pension freedoms might be wondering what happens to their pension now.
Before the pension freedoms there were two drawdown options: capped income drawdown and flexible income drawdown.
Flexible drawdown is most similar to today’s new flexi-access drawdown contracts in that it didn’t place a restriction on how much of your pension you could take as income. However, it was only available for those with a guaranteed retirement income elsewhere of £12,000.
Those without this income had to use capped drawdown, which placed a limit on the amount that you could draw down from your pension of 150% of a single life annuity that a person of the same age could purchase based on Government Actuary’s Department (GAD) rates.
Converting Capped Drawdown to Flexi-Access Drawdown
The pension freedoms removed this income divide for pension drawdown and offered everyone who wanted to use it flexible access to their pension. That’s why it was renamed flexi-access drawdown. Capped income drawdown is closed to new members.
Anyone who was previously using flexible drawdown was automatically converted to flexi-access drawdown after the new pension freedoms.
However, if you were in capped income drawdown contract you won’t have been switched over automatically and you have a decision to make.
You don’t have to move out of capped drawdown if you don’t want to. But if you do, you can do so by either:
- Breaching the cap you were previously subject to under capped drawdown, which automatically converts you to flexi-access drawdown
- Applying to transfer your capped drawdown arrangement to flexi-access drawdown, which may or may not be with the same provider depending on whether your provider permits flexi-access drawdown.
One benefit of sticking with capped income drawdown is that you retain your full annual allowance of £40,000. This is the amount you can continue to save into your pension each year and still get tax relief.
If you move to flexi-access drawdown, you lose this right and are subject to the money purchase annual allowance (MPAA), which lets you save just 4,000 a year while drawing your pension.