HMRC blinks first as it enforces higher GAD rate for women
HM Revenue and Customs has broken the industry silence on changes to way pension income is to be calculated following the implementation of European gender rules, updating its guidance to force providers to use the higher male rates to determine maximum drawdown.
According to a directive issued earlier this year in the wake of a ruling in March 2011 in the European Court of Justice, all insurers will be forced to equalise pricing of all insurance products, including annuities and income protection, by 21 December 2012.
In a statement HMRC said that the “calculation of the maximum drawdown pension is based on the annuity that could have been bought with the drawdown pension fund”, meaning that the way annuity providers implement the new rules will heavily influence how drawdown rates evolve.
Annuity providers have so far been conspicuously quiescent on the issue, which has prompted some industry commentators to express concern over the consequences for advisers that are obliged to comply with the regulator’s Treating Customers Fairly principles.
Ian McKenna, founder of the Protection Forum, said: “Treating customers fairly requirement makes it essential for post G-Day rates to be available significantly before G-Day.
“However at present no providers have indicated exactly when these will be available, and the general view is that it will be weeks or even days before G-Day, if at all.
“The industry needs to make sure that advisers can comply with treating customers fairly principle three, outcome three: Consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale.”
HMRC’s new guidance will mandate providers to use the higher male rate to calculate maximum drawdown income, rather than balancing rates between the current levels.
It is likely that this guidance will change some time after the directive is enforced to take account of the practices of annuity providers once the new rules are established.
HMRC said: “The change being announced means that from 21st December 2012 women will be able to take a higher drawdown pension income than before [while] men will see no change in the maximum drawdown pension they can receive.
“The ECJ has said that changes implementing the judgement have to be in place by 21st December 2012. However it is not yet certain how annuity providers will actually implement it.
“Until it becomes clearer how annuity providers will apply the judgement in practice, the maximum drawdown pension for both men and women aged 23 and over should be calculated using the higher male rates in Table 1 from 21st December 2012.”