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HMRC internal manual

Pensions Tax Manual

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Member benefits: pensions: drawdown pension rules applying from 6 April 2015: flexi-access drawdown fund - where member had designated funds in an arrangement into a capped drawdown pension fund before 6 April 2015

Glossary PTM000001
   

Continuing in capped drawdown
Conversion of a capped drawdown pension fund into a flexi-access drawdown fund
Payment of excessive drawdown pension
The scheme administrator agreeing to a request for conversion
Conversion to flexi-access drawdown following a transfer of the funds held in a drawdown pension fund

Continuing in capped drawdown

A member who was in capped drawdown on 5 April 2015 may choose either to continue in capped drawdown or to convert to flexi-access drawdown (see subsequent guidance on this page). The capped drawdown rules continue to apply automatically, unless there is a conversion.

For so long as the member opts to remain in capped drawdown, the drawdown pension fund rules continue to apply to the member’s drawdown pension fund. Briefly, this means that the existing drawdown pension fund continues to be used to provide capped drawdown pension. Any further funds designated after 6 April 2015 in the arrangement will be designated to the member’s existing capped drawdown pension fund. The limit on the maximum amount of pension the member can draw each year will continue to apply as will all the other capped drawdown pension rules. For details on the capped drawdown pension rules see PTM062520.

Where the member continues in capped drawdown, the money purchase annual allowance rules will not apply so long as

  • the member does not take drawdown pension from that fund in any drawdown pension year that exceeds their maximum capped drawdown amount (see “Payment of excessive drawdown pension”), and
  • the member has not flexibly-accessed pension funds under any other money purchase arrangements they may have (which includes taking an uncrystallised funds pension lump sum from such an arrangement). See PTM056500 for first flexible access and money purchase annual allowance.

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Conversion of a capped drawdown pension fund into a flexi-access drawdown fund

Paragraph 8B to 8D Schedule 28 Finance Act 2004

If, on 5 April 2015, the member’s existing drawdown pension fund was paying a capped drawdown pension (see PTM062740 for the position where the member instead qualified for flexible drawdown) certain events occurring after that date will result in the capped drawdown pension fund being converted into a flexi-access drawdown fund. These events are:

  • the payment of excessive drawdown pension
  • the scheme administrator agreeing to a request for conversion
  • certain transfers.

The remainder of this page contains further guidance on each of these events.

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Payment of excessive drawdown pension

Paragraph 8B Schedule 28 Finance Act 2004

If at any time on or after 6 April 2015

  • there is a payment of income withdrawal or of a short-term annuity purchased with sums or assets held in the fund, and
  • that payment results in the maximum capped drawdown pension the member can take from the fund being exceeded (see PTM062530 for more detail)

then the fund is treated as though, immediately before the payment is made, it had only been newly designated as available for the provision of drawdown pension. This means that the capped drawdown fund is treated as having become a flexi-access drawdown fund immediately before the payment is made, so the payment is treated as having been made from a flexi-access drawdown pension fund (see PTM062730) and is therefore an authorised payment.

Because the payment of capped drawdown pension has become a payment of flexi-access drawdown pension, it is no longer excessive (as there is no limit on the amount that can be paid as flexi-access drawdown pension).

Unless the whole of that drawdown fund is attributable to a disqualifying pension credit, the payment may however trigger the money purchase annual allowance rules (see PTM056500).

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The scheme administrator agreeing to a request for conversion

Paragraph 8C Schedule 28 Finance Act 2004

A member with a capped drawdown pension fund may at any time notify their scheme administrator that they wish their fund to become a flexi-access drawdown fund in respect of the arrangement holding the fund. This notification may have been (but does not have to be) given to the scheme administrator before 6 April 2015.

The scheme administrator does not have to accept the notification. If they do not then the member will continue in capped drawdown (see PTM062520 onwards for more details about capped drawdown) unless another event leading to conversion from capped to flexi-access drawdown occurs.

If the scheme administrator accepts the notification, the member’s capped drawdown fund becomes a flexi-access drawdown fund from the later of the date the scheme administrator accepts the notification and the start of 6 April 2015.

The flexi-access drawdown rules will then apply (see PTM062730). Unless the whole of that drawdown fund is attributable to a disqualifying pension credit, when the member accesses any of these funds they may trigger the money purchase annual allowance rules (see PTM056500).

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Conversion to flexi-access drawdown following a transfer of the funds held in a drawdown pension fund

From 6 April 2015, where a member makes a recognised transfer from one recognised pension scheme to another (see PTM100000) of the sums and assets held in a capped drawdown pension fund and the transferred sums and assets are designated under the arrangement in the new scheme as being available for the payment of drawdown pension, the member has two options.

  • The member can notify the scheme administrator of the scheme receiving the transfer that they wish the sums or assets to become newly-designated funds. The member can give their notification before or at the time they designate the funds in the receiving scheme as available for the payment of drawdown pension. The scheme administrator cannot refuse to accept the notification. The sums and assets become newly designated funds on the latest of 6 April 2015, the date the designation is made and the date of the transfer. On the date the funds become newly designated funds, the sums and assets become held in a flexi-access drawdown fund.
  • Or the member can simply not give any such notification, and continue to take capped drawdown pension from their new arrangement in the receiving scheme.

See PTM104000 for more details about transfers of drawdown pension.