Summary
Flexi-Access Drawdown is treated as a crystallized pension pot in Timeline.
The platform allows for flexible retirement income, letting the pot remain invested.
Timeline provides options to account for previous crystallizations and remaining Lifetime Allowance.
Introduction
Flexi-Access Drawdown is a popular method for drawing retirement income while keeping the pension pot invested. In Timeline Planning, this is treated as a crystallized fund, meaning it has already been tested against the member's Lifetime Allowance. This article aims to explain how to set up and manage a Flexi-Access Drawdown in Timeline Planning.
Setting up a Flexi-Access Drawdown
For advisors using Timeline, the platform allows for the designation of funds to provide a drawdown pension. You'll need to set up an Uncrystallized account and a Flexi-Access Drawdown account. Then, you can set up a contribution from the Uncrystallized account to the Flexi account. 25% of this amount will be tax-free, and the remaining 75% will be transferred to the Flexi-Access Drawdown account, to be taxed upon withdrawal.
Example 1: Not Previously Crystallized Pension Pot
Let's assume John has £400,000 in his Uncrystallized account with 100% of his Lifetime Allowance available. John wishes to crystallize the entire sum. He will receive £100,000 tax-free (25% of £400,000), and the remaining £300,000 will be designated to the Flexi-Access Drawdown account, to be taxed upon withdrawal.
Example 2: Already Crystallized Pension Pot
John initially had £1,000,000 in his Uncrystallized account and crystallized £500,000, leaving him with a remaining Lifetime Allowance of 50%. He received £125,000 tax-free and designated £375,000 to the Flexi-Access Drawdown account. In Timeline, you can set the remaining allowance to 50% to account for future crystallizations.
Spending from Flexi-Access Drawdown
Withdrawals from the Flexi-Access Drawdown are fully taxable. For example, if John receives £10,600 from his State Pension and wants a total annual spending of £70,000, he would need to withdraw £59,400 from his Flexi-Access Drawdown. This amount will be taxed on top of his State Pension, resulting in a total income tax of £15,432 based on current tax rates and bands.
Conclusions
Timeline Planning offers a flexible approach to managing Flexi-Access Drawdowns, whether you're just starting to access your pension or have already made several crystallizations. Understanding how these are modeled in Timeline can help you make more informed decisions about retirement planning.