Gov't prevents use of scheme pension towards MIR
Scheme Pension that is paid out by a pension scheme containing less than 20 members will not be able to be used towards the minimum income requirement (MIR) for flexible drawdown, HMRC has confirmed.
Providers had welcomed the initial draft of the proposals for changes to pensions legislation, in particular the fact that scheme pension did not appear to excluded and could be used towards the £20,000 annual limit before flexible drawdown could be taken.
However, a clarification issued by HMRC today (31 March) to coincide with the release of the final draft of Finance Bill 2011 reveals that this is no longer the case and that scheme pension cannot be used towards an individual's MIR.
The paper states that "payments of a scheme pension made in respect of a money purchase arrangement and payable by the scheme administrator" where there are less than 20 members will not be counted as 'relevant income'.
Richard Mattison, business development director at James Hay Partnership, said that the decision was "disappointing" and reflected a continued desire by the government to compel annuity purchase.
"The government needs people to buy an annuity as it needs its gilt issues to be bought up.
"Nest stinks for the same reason; it forces annuity purchase at retirement and individual's cannot transfer out of it."
Greg Kingston, head of marketing for SIPP specialist Suffolk Life, disagreed, saying that the new rules were "not onerous" and that they fitted in "with the spirit of flexible drawdown".
"It sounds like there are allowing this for larger occupational schemes only.
"Scheme pension set up by some operators is not scheme pension in the true sense; the income is not any more secure than any other payment from a Sipp.
"The spirit of flexible drawdown was to get guaranteed income so that people do not fall back on the state. Essentially small scheme pension arrangements are just another form of drawdown."