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The retirement wave - Tax planning with drip-feed drawdown

3 minute read

Tax-efficient income with Retirement Account

Drawdown continues to grow in popularity, with more clients now using this option than ever before. It’s one of the most flexible ways for clients to access their pension, making it a great choice for many, but with this flexibility comes complexity, and of course, risk.

What is longevity risk?

No-one can predict how long any of us will be in retirement, and with more people now living longer than ever before an obvious risk is the possibility of clients running out of money. Many people underestimate the length of time they will spend in retirement, so it’s crucial that the amount of income taken from pension funds is effectively managed.

What do your clients' need from you?

The complexity and risks associated with drawdown means the role of financial advice becomes even more important – clients will need support and expertise to ensure their funds are not exhausted.

  • A sense check of their financial plans
    Regular reviews to discuss their financial circumstances will help ensure they stay on track for the retirement they’d like. Our drawdown checklist can help with your client review conversations.
  • Expert advice
    Some clients will need to access their full tax-free cash entitlement as a lump sum. But for those that do not, optimising their tax position will help ensure the funds last as long as possible.
    • Where tax-free cash is taken gradually, the remaining funds stay invested, giving the potential for investment growth and an increase in the total monetary amount of their tax-free cash entitlement.
    • Drip Feed Drawdown offers the ability to manage your clients’ tax position by making regular income withdrawals made up partly or wholly of tax-free cash until their entitlement has been fully utilised.

Here's how Retirement Account from Scottish Widows can help

Retirement Account’s Drip-feed drawdown (DFD) facility is automated and fully flexible, helping you to serve clients easily and cost-effectively.

  • DFD enables you to give your clients control over the level of taxable income they take.
    • Helps you to manage their tax affairs efficiently.
    • Offers the potential for their retirement fund to grow.
    • Provides the opportunity for further tax-free cash to accumulate.
  • As your clients progress through retirement, our DFD facility has the flexibility to be tailored to meet their changing income needs.
    • Your clients can draw regular amounts using either their tax-free cash only or a combination of their tax-free cash entitlement and taxable income.
    • Income payments can be set-up on a monthly, quarterly, half-yearly or annual basis.
Retirement wave income needs graph

Retirement Account’s DFD allows your clients to take the optimal amount of tax-free cash to supplement taxable income, helping create a tax-efficient income in retirement.

  • Our systems will automatically pay the required tax-free cash and/or taxable income amount on the requested payment date.
  • With two distinct elements, each holding uncrystallised and crystallised pensions, it’s easy to designate amounts.

Remember:

If your clients take a taxable income as well as tax-free cash, the Money Purchase Allowance will apply, limiting future pension contributions.

The retirement benefits clients receive from their pension plan depends on a number of factors, including the value of their plan when they decide to take benefits, which isn’t guaranteed and can go down as well as up.
Tax rules may change.

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This information is for UK financial adviser use only and should not be distributed to or relied upon by any other person.