Under the new 'Flexi-Access Drawdown (FAD)' rules, there are several options available for individuals wishing to draw an 'income' from their pension benefits. This guide is intended specifically for modelling a tax-free income, with the deferment of any taxable income until some later time. Given this objective, one could:
- Take the entire 25% tax-free lump sum and invest the remaining 75%, which can then be used as needed, or not at all (Flexible Drawdown), as detailed here >>>.
- Choose a strategy of 'partial pension encashment', to crystallise only a sufficient amount, year-on-year, to realise a tax-free income, for as long as possible, with the temporary, or permanent deferment of any taxable income.
It is the latter of these two options that is now detailed, below:
- Step One: Set taxable (drawdown) income to 'None'.
In the Pensions > Money Purchase screen, open Withdrawals & Annuity > Income from Drawdown Pension, as shown below:
As illustrated, one can set the Yearly Drawdown Amount to None.
Should the individual, subsequently (i.e. later in the plan), require 'taxable' drawdown income, this can be scheduled by using the Step-Up/Step-Down facility, located in the Pensions > Drawdown Pension screen, under Advanced Settings. Further details on how to do this can be found here >>>
- Step Two: Set-up a regular tax-free income
When scheduling a regular tax-free 'income' from an as-yet-un-crystallised money purchase account, it will be important to consider your specific requirements and priorities, given that multiple options options, as suggested below:
- Receive a pre-determined monetary figure (of tax-free cash), year-on-year, either level or increasing with inflation.
- Receive a pre-determined amount (of tax-free cash), but one that varies, dependent upon the individual's particular income requirement, year-on-year.
- Receive a finite monetary amount (of tax-free cash), by 'phasing' the crystallisation of benefits over a pre-determined timeframe.
To model any of these options, select Withdrawals & Annuity > Crystallisation of Money Purchase. When the dialogue box appears, as illustrated below, start by selecting the event at which the crystallisation of benefits is to commence:
Some suggested settings:
1. To receive a pre-determined amount of tax-free cash, on a recurring basis, one will (of course) need to set the Crystallised Amount to 4x the desired amount (by choosing either the 'Fixed with Inflation' or the 'Fixed without Inflation' option, and entering a monetary figure). The Lump Sum option will be set to '25%', or to 'Tax-Free Cash Only'. Frequency will be set to 'Recurring'.
2. To receive a varying amount (of tax-free cash), from one year to the next, dependent upon the individual's particular needs, one will need to enter a series of discrete crystallisation instructions, using a series of 'events' added to the Timeline, in advance. Having added an appropriate series of events, one can use the Add Crystallisation button to enter a series of 'One Time' crystallisation events. This option is covered in more detail, at the instruction linked to here >>>
3. To receive a finite monetary amount (of tax-free cash), by 'phasing' the crystallisation of benefits over a pre-ordained timeframe, one would set the Crystallised Amount to '100%'. Frequency will be set to 'Phase Over x Years', with the choice of an appropriate period of time. A short guide is linked to here >>>
To return to 'Retirement Planning Options - Default Settings' click here <<<
Last updated 07 October 2015, Release 4.0.22
Retirement Income (Webinar 2)