RPSM09103600 - Technical pages: member benefits: drawdown pension: flexible drawdown - minimum income

This guidance has been written from the members’ perspective.

Flexible drawdown pension: Minimum income requirement

What pensions are included in the minimum income requirement?
What pensions do not count towards the minimum income requirement?
How do I value any relevant income I am receiving which is not being paid in sterling?

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What pensions are included in the minimum income requirement?

[Paragraph 14 A(3) Schedule 28 Finance Act 2004][Regulation 3 The Registered Pension Schemes (Relevant Income) Regulations - Statutory Instrument - SI 2011/1783][Regulation 9 The Pension Protection Fund (Tax) Regulations - Statutory Instrument - SI 2006/575]

The minimum amount of other pension income you must be receiving in order to be eligible for flexible drawdown under the tax rules is

  • for flexible drawdown declarations made before 27 March 2014, £20,000, or
  • for flexible drawdown declarations made on or after 27 March 2014, £12,000.

Only pensions actually in payment count towards the minimum income requirement for flexible drawdown. To qualify, the pension must be guaranteed for life and, in general, not be one that can reduce from one year to the next.

The following broad types of pension that you are receiving may be counted towards the minimum income requirement.

  • state pension,
  • scheme pensions,
  • dependants’ scheme pensions, and
  • lifetime annuities, and
  • dependants’ annuities.

The full details of what pensions count towards the minimum income requirement are as follows.

  • A scheme pension or dependants’ scheme pension paid as an annuity

Where a scheme pension or dependants’ scheme pension is paid from a registered pension scheme and the pension is provided from an annuity policy the pension counts towards the minimum income requirement even if the pension scheme has less than 20 people getting a pension.

  • A scheme pension or dependants’ scheme pension from a registered pension scheme which is not paid as an annuity and the scheme has 20 or more people receiving a pension.

Guidance on what a scheme pension is can be found at RPSM09101710. Note: any pension paid from a defined benefits (also known as final salary) part of a registered pension scheme should be a scheme pension.

  • Pension paid from a registered pension scheme as a lifetime annuity or dependants’ annuity where the annuity either will pay the same amount each year or the amount can increase.
  • Pension paid as a lifetime annuity or dependants’ annuity where the amount you get each year varies, and can go down can be counted towards the minimum income requirement. But unless the annual amount of the annuity is calculated only by reference to the RPI in accordance with regulation 2(2)(a)(i) of SI2006/568 the amount that is included is the minimum amount payable each year under the contract in accordance with regulation 2(4) SI 2006/568.

Guidance on what a lifetime annuity is can be found at RPSM09101205.

  • Pensions from an overseas pension scheme that would be one of the types of pensions listed above if paid from a registered pension scheme. An overseas pension scheme is a pension scheme set up outside the UK that is not a registered pension scheme and meets certain conditions set by regulations. Guidance on how a scheme meets the definition of an overseas pension scheme is in the Registered Pension Schemes Manual at RPSM13101070.
  • Periodic compensation paid by the Pension Protection Fund
  • Your state pension
  • Other social security pensions that are either
    • taxable under section 577 ITEPA 2003 (graduated retirement benefit, industrial death benefit, widowed mother’s allowance, widowed parents allowance, and widow’s pension), or
    • are payable under the law of another country outside the UK and are very similar in character to the state pension and other benefits taxable under section 577 ITEPA 2003.
  • Certain payments made by the financial assistance scheme (FAS) or because your pension scheme is to enter FAS.

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What pensions do not count towards the minimum income requirement?

[Paragraph 14 Schedule 28 Finance Act 2004]

Drawdown pensions and dependants’ drawdown pensions (previously called either unsecured pension or alternatively secured pension) do not count towards the minimum income requirement.

Short-term annuities and dependants’ short-term annuities do not count towards the minimum income requirement.

Scheme pensions paid from a registered pension scheme in respect of defined benefits arrangements where the scheme has less than 20 members do not count towards the minimum income requirement.

If the terms of your lifetime annuity contract or dependants’ annuity contract allow the annual amount of your annuity payment to go down any amount over minimum amount payable each year under the contract cannot be counted, unless the annual amount of the annuity is calculated only by reference to the RPI in accordance with regulation 2(2)(a)(i) of SI2006/568.

A pension from an overseas pension scheme that would be one of the types listed above if paid from a registered pension scheme does not count towards the minimum income requirement.

An overseas pension scheme is a pension scheme set up outside the UK that is not a registered pension scheme and meets certain conditions set by regulations. Guidance on how a scheme meets the definition of an overseas pension scheme is at RPSM13101070.

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How do I value any relevant income I am receiving which is not being paid in sterling?

[Paragraph 14(A) (6) Schedule 28 Finance Act 2004] 

In flexible drawdown minimum income requirement tests any relevant income that is payable in a currency other than Sterling is to be converted to its Sterling equivalent using the exchange rate for the relevant day i.e. the declaration date for the first declaration. You can use any suitable spot rate for that day.


  Glossary (RPSM20000000)