Adrian Walker, retirement planning expert for Old Mutual Wealth, comments: “It is dangerous to measure the success of pension freedom against the amount of money people are taking out of their long-term savings. The fastest way to outlive ones savings is to take out too much, too early. There are three main risks with drawdown products that clients need to be aware of: longevity risk (they could outlive their savings) inflation risk, whereby changes could erode the purchasing power of the savings, and sequence risk. Individuals who do not entirely exhaust their funds should take care to ensure their withdrawals take advantage of this real-time PAYE system during the tax year. This is how his tax position would work out: This means his tax is based only on what he is paid in the current pay period, not the whole year. When he withdraws £1,000 in June 2015 as a one-off payment, the M1 emergency tax code is applied. He has no other income sources, and is entitled to the basic personal allowance. The tax deducted from his annuity income is £880. He already receives gross annuity income of £15,000 a year and has no remaining pension commencement lump sum (PCLS). Therefore, advisers will need to understand how the tax codes work.Ī helpful factsheet from James Hay Partnership produced last tax year presented a range of case studies of clients using flexi-access drawdown and how they could be taxed in various scenarios.įor example, Norris wants to withdraw £20,000 gross under the flexi-access rules.
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