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Technical View

Technical View

Your Questions Answered

Welcome to this month’s Technical View, where we will be focusing on some recent questions received by the Technical e-helpdesk concerning the changes to pension flexibility now the legislation has been implemented. We hope that this will help you with some queries you may receive. 

Technical View aims to answer queries received by you, as a financial adviser for your use when you meet clients in similar scenarios. We hope that this provides useful, topical and valuable information.

If any of your colleagues would like to receive our newsletters, please e-mail us and we will be delighted to include them in our future communications.

Question 1 


A client who has old fixed protection (£1.8m lifetime allowance) who no longer makes pension contributions has a SIPP worth £1.4m. They wish to draw up to their 25% tax free cash and use this to pay down a mortgage and leave the residual amount invested for income at a later date. Could you clarify the following points: 

  • Is this possible via flexible drawdown arrangement or is there another way post April 6th 2015? 
  • Does the client need to withdraw all of their tax free cash at once or can they do it in stages?
  • If the client passed away before 75 without taking any income, will the death benefits be taxed in the hands of the beneficiaries? 

Answer 1

As of 6 April 2015, flexible drawdown will no longer exist. Flexi-access drawdown (FAD) will replace flexible drawdown and any clients in flexible drawdown in a DC scheme will be switched to FAD on that date. There is no minimum income requirement for FAD. 

Taking part Pension Commencement Lump Sum (PCLS) is not an option under FAD. When funds are crystallised under FAD, 25% of these funds are normally available tax free as PCLS. It is not possible to take just some of the PCLS from the crystallised funds with a view to taking more later. It is possible to crystallised a proportion of the funds (phase), take 25% PCLS and then later crystallise further funds and take 25% as PCLS.

An alternative option may be to take an uncrystallised fund pension lump sum (UFPLS) where 25% of the payment is tax free and the remaining 75% is taxed as pension income. Note that if he takes a large taxable lump sum, this could put him into a higher income tax bracket.  

With regards to any death benefits from the client’s DC schemes, if he were to die before reaching age 75, any remaining pension fund would normally be passed to his beneficiary/ies free of both income and inheritance tax, providing benefits are paid by the scheme administrator on a discretionary basis and that the benefits are paid or designated to FAD within 2 years of the pension scheme being notified of the death.

Question 2

If a client wished to take their PCLS only and no income from their Personal Pension post 6 April 2015, would the annual allowance for pension contributions be reduced from £40,000 to £10,000? They would like to continue their current level of contribution of £21,000 per annum.

Answer 2

If a client with uncrystallised benefits crystallises their pension fund post 6 April 2015, the client could take their PCLS and not take any income at present via flexi-access drawdown. This does not trigger the reduced Money Purchase Annual Allowance (MPAA), and so the client would retain the normal annual allowance of £40,000. For further details on trigger events for the MPAA please click here. 

Question 3

Would a client aged 53 who is already in receipt of capped drawdown payments from their deceased spouse’s pension be able to take the remainder tax free after the 6 April 2015? If not, could clarification be provided as to whether they would be able to access flexi-access drawdown despite the client’s age and they are currently drawing 150% GAD?

Answer 3

The new tax rules affecting payment of death benefits from a pension scheme are only applicable where payment for the first time is made on or after 6th April 2015. If any benefits have been paid prior to 6th April 2015, the new rules do not apply. Therefore the client’s drawdown income will be subject to tax.

Whether the client would be able to access flexi-access drawdown (FAD) under the current dependant’s drawdown pension would depend on the rules of the particular scheme. There is no minimum age requirement for a beneficiary accessing funds under the new rules but whilst the legislation allows for certain flexibilities, not all providers will offer all of the options under all schemes.

If the client takes more income than their maximum GAD rate allows, the dependant’s drawdown pension fund will automatically convert to dependant’s FAD. Note that as the pension fund is inherited it does not use any of the client’s lifetime allowance. 

Hopefully this edition has provided some answers for you on similar queries you may have. If you have further queries on the content of this edition or other technical queries then please contact the Technical e-helpdesk at technical@sanlam.co.uk.

Date Issued: April 2015

This note is to be used by Financial Advisers only. It is not intended for onward transmission to a private customer and should not be relied upon by any other person. Sanlam accepts no liability for any action taken or not taken by an individual or firm as a result of the contents of this material. The tax treatments and information contained in this document is based on current tax law and HMRC practice as at April 2015 and may be subject to change in the future. Whilst we have made every effort to ensure the accuracy of this material, we cannot accept responsibility for any consequence (financial or otherwise) arising from relying on it. This document is for information purposes only and should not be treated as advice and independent taxation advice should be always sought.

Past performance is no guarantee to future performance. The value of investments can fall as well as rise so investors could get back less than they invest.

Sanlam & Sanlam Investments and Pensions are trading names of Sanlam Life & Pensions UK Limited (SLP (Reg.in England 980142)) and Sanlam Financial Services UK Limited (SFS (Reg. in England 2354894)). SLP is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. SFS is authorised and regulated by the Financial Conduct Authority. Registered Office: St. Bartholomew’s House, Lewins Mead, Bristol BS1 2NH.

Investing involves risk and the value of investments and the income from them may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested.