Most people invest in a pension as a part of their retirement planning. Until recently, pensioners did not have the flexibility to take as much income as they want from their pension funds. One of the newest forms of income drawdown is flexible drawdown which allows pensioners to remove more income from their pension funds than is normally permitted if the Minimum Income Requirement is met by them.
The Minimum Income Requirement or MIR was implemented by the government to prevent people from removing all of their money from their pension funds and then relying on the government for support in their retirement years. People who are able to meet the MIR are allowed to remove as much money as they want from their pension funds. Although it is not advised due to the taxes that they may have to pay, pensioners who meet the MIR can remove all of the money from their pension funds in one go.
The current MIR is set to £20,000 per year. This is the guaranteed income that a person must have on a yearly basis before tax in order to qualify for flexible drawdown. Since that this income must be guaranteed, only specific sources of income are acceptable. The three accepted sources of income are: lifetime annuities, state pensions, and scheme pensions.
There are many reasons why pensioners may want to take more income out of their pension funds. One of the main reasons is that the current income of pensioners may not be able to meet all of their current needs. They may temporary need more money to meet their needs. In some years pensioners may need more money to cover their costs. During these years, flexible drawdown allows them to remove more income from their pension funds.
Two main disadvantages of flexible drawdown is that as soon as pensioners apply for flexible drawdown, they can make no further contributions to their pension funds and if high levels of income are removed from their pension funds, it is more likely that the pension fund will be eroded over time. Flexible drawdown is not offered by all pension providers.
