Flexible drawdown, the form of “income withdrawal” where a pension is paid direct from a pension scheme, is a significant planning opportunity for financial advisors, said Skandia, the UK investment platform and product provider of Old Mutual Wealth.

Clients who are still in the process of building up savings should be targeted, said the firm,  and be prepared to make sacrifices in the short term in order to achieve a “no strings attached” pension at retirement.

Faced with today’s barrage of changes to capped drawdown rules, clients are less certain over the maximum income levels they will have, therefore making advice planning at retirement particularly difficult, said the firm.

This is where Skandia proposes that flexible drawdown can avoid such “headaches” caused by today’s regulations, and allow clients to take full control of how they deliver income from their pension savings.

“Flexible drawdown should be seen as a retirement goal and not simply as a retirement solution once someone reaches retirement. It is still relatively new in the market, but more and more financial advisors are realising the huge potential flexible drawdown has as part of a client’s overall financial planning. A ‘no strings attached’ retirement option is likely to appeal to many, helping to put advisors and clients in full control of their financial wealth,” said Adrian Walker, Skandia’s pension expert.

The firm estimated that someone who has been saving regularly into money purchase pension arrangements over the whole of their working life could quite easily have built up pension savings of around £335,000 ($510,000). This could be used to buy an annuity of around £14,300 per annum, which combined with the state pension of at least £5,727 a year, will mean they are likely to meet the qualifying income level of £20,000 required for flexible drawdown. Therefore any money purchase savings a client has above that level will be instantly accessible at retirement under flexible drawdown, with “no strings attached”.

The firm further outlines two benefits flexible drawdown has for the client. First, they can take a tax-free lump sum of 25 per cent of this fund immediately and then take as much or as little of the remaining fund as taxable income over a period of years to meet future retirement income needs.

Second, clients can phase in the use of this additional amount of savings to provide income as needed with 25 per cent of each encashment being tax free and the balance being subject to income tax, therefore allowing savings to grow and reducing the amount of tax payable on the remaining savings, should they pass away.

The Pension Policy Institute calculated that 700,000 people aged between 55 and 65 could meet the minimum income requirement set for flexible drawdown with the pension savings they have in place, with 200,000 having sufficient money purchase funds remaining to access flexible drawdown now.