Following earlier suggestions that income from RPI-linked annuities would be excluded from the Minimum Income Requirement (MIR) for Flexible Drawdown in some cases, the government has brought forward new legislation to ensure it is always considered as a ‘relevant income’.
In order to qualify for Flexible Drawdown, where there is no limit on the annual income from Unsecured Pension, an investor must first secure £20,000 in annual pension income.
The Treasury had previously said that inflation-linked annuities which did not offer a ‘floor’ on the minimum level of income would be excluded from this Minimum Income Requirement.
Because inflation can be negative, there is a risk that those investors using index-linked annuity income will see their secured income fall below the £20,000 Minimum Income Requirement in a period of deflation.
The new legislation, which will come into force on 11th August 2011, means that all income coming from pension annuities linked to the Retail Prices Index (RPI) will count as ‘relevant income’ towards the Minimum Income Requirement.
Anyone considering Flexible Drawdown should seek professional independent financial advice.
Whilst the idea of being able to dip into your pension pot without the application of income limits sounds attractive, there are costs and risks involved which need to be considered in the wider context of your financial planning.
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