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Capped Drawdown, Flexi-access and triggering the money purchase annual allowance

April 2015 saw the introduction of one of the biggest changes to pensions ever seen. This is potentially changing the fundamental concept of a pension and what it can be used for.

The simple basis for these changes is the ability to take your pension fund as income after age 55 in whatever form and amounts that you require with no restrictions. The rules surrounding capped drawdown and conversion to flexi-access accounts and pension contribution restrictions to money purchase schemes will now need to be considered in more detail when planning..

This is a summary of the general position only and not in depth and should be read in conjunction with other articles published.

Capped Drawdown

  • If the member is in capped drawdown prior to 6 April 2015 they can continue in capped drawdown after this date.
  • The member will continue to be restricted to 150% of the applicable GAD rate for income payments as per current legislation.
  • No new capped drawdown accounts can be set up after 5 April 2015, unless for the purpose of accepting a capped drawdown pension transfer.
  • The member can contribute to an existing capped drawdown account and transfer in other benefits without losing capped drawdown status.
  • If the member has a capped drawdown account and opens a new flexi-access policy,rules for both capped drawdown and flexi-access will continue to apply to the appropriate contracts. This will mean the member can take benefits within GAD limits from the Capped Drawdown account and still benefits from £40,000 money purchase contribution limits. However, if any income is taken from the flexi-access account this contribution limit will drop to £10,000.

Flexi-Access

New rules cover the new flexi-access contracts that allow for unlimited income withdrawals.

  • If a member has their first drawdown crystallisation event after 6 April 2015, this will be classed as flexi-access.
  • Flexi-access allows for income to be taken from a policy with no upper limit.
  • This can include withdrawing the all of the funds from a policy and closing it.
  • Monies can still be contributed into a flexi-access account.

Events for flexi-access conversion and trigger events for the money purchase annual allowance

There are also underlying rules which, if triggered, will reduce the maximum amount a member can pay into money purchase pensions down to £10,000.

  • Anyone in flexible drawdown before April 2015 will be treated as being in flexi-access after April 2015.
  • Flexible drawdown to flexi-access conversion will allow the member to make pension contributions – but they will be restricted to £10,000 in money purchase schemes.
  • If in capped drawdown a member can elect to convert their policy to flexi-access. This does not trigger the contribution restriction until any income is taken.
  • If the member in capped drawdown takes income in excess of the 150% GAD limit, this will trigger a conversion to flexi-access and the income payments made will trigger the contribution restriction.
  • Any new contract taken out after 5 April 2015 ( except when facilitating a capped drawdown pension transfer) will be classed as flexi-access. The contribution restriction is not triggered until any income is taken.
  • Any dependant’s or beneficiary’s contracts entered into after April will be seen as flexi-access accounts.
  • If a member takes an Uncrystallised Fund Pension Lump Sum, although not technically in a flexi-access account, they will trigger the contribution restriction of £10,000.
  • In the cases above, where the member has triggered the flexi-access contribution restriction limit, they must inform all their other pension providers within 91 days. This 91 day period is triggered by the receipt of notification from the provider that they have invoked the £10,000 contribution limit.

The information provided in this article is not intended to offer advice.

It is based on Old Mutual Wealth's interpretation of the relevant law and is correct at the date shown at the top of this article. While we believe this interpretation to be correct, we cannot guarantee it. Old Mutual Wealth cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained in this article.

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