Client B was aged 70 wishing to obtain additional income, had not yet taken her pension fund as she lived off state pension and investment income. An additional aim was to minimise any tax payments.
The client had a personal pension plan with a fund value of approximately £100,000. She had no immediate need for any lump sum payment (but this could change in the future).
Under current rules she had 5 years to take her tax-free cash, (as after age 75 no tax-free cash can be taken). To achieve the client’s aims her pension fund was placed into a “phased drawdown plan”. 20% of the fund was taken to provide pension benefits i.e. £20000.
Taking the maximum tax-free cash, equivalent to £5000 tax-free income, provided the required “income”. The remaining £15,000 had to provide a pension; this "income" can be zero. Thus, £95,000 remained invested.
If the client’s aims remain the same the plan was to actually take a further 20% of the fund in 12 months time and each year thereafter..
Hopefully the fund will grow, and the resultant tax-free cash will be greater than the initial £5000.
This exercise will be repeated for 5 years so that the client will have used up her full entitlement to tax free cash, have access to tax free income for 5 years, as well as the flexibility to change her plans at any time.