What is the difference between flexi-access drawdown and capped drawdown?

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Understanding the difference between flexi-access and capped drawdown matters mainly for people who set up a drawdown arrangement before the 2015 pension freedoms and are deciding whether to convert to the newer, more flexible system. **Capped drawdown -- the older system** Capped drawdown was the standard form of income drawdown available before April 2015, allowing you to take an income from your invested pension pot, but subject to a maximum withdrawal limit set using Government Actuary's Department (GAD) rates, reviewed periodically -- this cap was designed to prevent someone from withdrawing so much, so quickly, that they would exhaust their pension pot and potentially need to fall back on means-tested state support later in retirement. **Flexi-access drawdown -- introduced by the 2015 pension freedoms** Flexi-access drawdown removed the GAD-based withdrawal cap entirely, allowing pension savers complete flexibility to withdraw as much or as little as they wish from their drawdown pot at any time, including withdrawing the entire pot in one go if desired -- reflecting the pension freedoms' broader philosophy of giving individuals full control over their own retirement savings, alongside the responsibility that comes with that freedom. **The Money Purchase Annual Allowance trigger** A crucial difference is that taking an income (beyond just the tax-free lump sum) from a flexi-access drawdown arrangement for the first time triggers the Money Purchase Annual Allowance (MPAA), which drastically reduces the amount you can contribute to a defined contribution pension each year while still receiving tax relief, from the standard £60,000 annual allowance down to just £10,000 -- this is designed to prevent 'recycling', where someone withdraws pension money and then re-contributes it to claim further tax relief on the same money. Capped drawdown withdrawals, provided they stayed within the GAD-based cap, did NOT trigger this same restriction. **Can capped drawdown still exist today?** No new capped drawdown arrangements can be set up since April 2015, but people who already had a capped drawdown arrangement in place before that date could, in principle, have continued it under the old rules -- though many capped drawdown holders have since converted, voluntarily or as a result of exceeding the cap, into flexi-access drawdown, since ongoing GAD reviews and administrative complexity make maintaining capped drawdown less common today. **Why exceeding the capped drawdown limit matters** If someone still in a capped drawdown arrangement withdraws more than their GAD-based maximum in a given year, this automatically converts their arrangement into flexi-access drawdown from that point onward, triggering the Money Purchase Annual Allowance -- so anyone still holding a legacy capped drawdown arrangement needs to be very careful not to inadvertently exceed their cap if they specifically want to preserve the higher annual allowance associated with capped drawdown. **Worked example** Someone who set up capped drawdown in 2013 has continued taking income strictly within their GAD-based limit each year since, preserving their capped drawdown status and the full £60,000 annual allowance for any pension contributions they might still wish to make. If, in a particular year, they need to withdraw an amount above their GAD limit (for example, for an unexpected large expense), doing so would convert their arrangement to flexi-access drawdown, immediately triggering the £10,000 Money Purchase Annual Allowance for any future contributions, even though they may not have intended this consequence. **Practical tip** If you still hold a legacy capped drawdown arrangement and are considering withdrawing more than your GAD-based limit, get advice first to fully understand the Money Purchase Annual Allowance consequence, particularly if you are still working and making, or planning to make, significant pension contributions elsewhere.

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