Pensions  

Advisers call for capped drawdown to remain open

Advisers have called for capped drawdown to remain open following the at-retirement reforms implementation date of April 2015, according to self invested pension provider Talbot and Muir.

The pension freedoms announced in the Budget put an end to new entrants into capped drawdown after April 2015, instead introducing the new flexi-access drawdown. Those already in capped drawdown will be ‘grandfathered’ into the new regime.

Capped drawdown limits annual income to, since the Budget, 150 per cent of the prevailing GAD rate, while under the new flexible drawdown, introduced as part of the pension freedoms, income is unlimited.

From April the annual allowance for those who have crystallised their fund will reduce to £10,000 from the current £40,000, however ths reduction will not apply to those in capped drawdown.

Chris Smeaton, marketing director at James Hay, recently told FTAdviser he imagines more financial advisers putting their clients into these schemes prior to April so they can benefit from the £40,000 annual allowance.

Talbot and Muir’s technical helpdesk said it is being inundated with calls from advisers on the subject of capped drawdown.

Claire Trott, head of technical support at the Sipp specialist, said capped drawdown should not be closed to new entrants, as it allows policyholders to monitor income levels against a set standard without the need to lock into an annuity.

She added: “The Money Purchase Annual Allowance rules may penalise those that don’t want to take advantage of the pensions reforms but want to use pensions as they were intended, to provide a sustainable income in retirement.

“By accessing income of any sort, members will not have the flexibility to make larger pension contributions in the future should their circumstances change.”

She continued that capped drawdown is well established and well understood by advisers, so it is a clear backwards step to remove all barriers even for those that want them.

“Advisers seem quite frankly confused at the government’s decision to remove a well established process of monitoring income levels and it would seem sensible that this is reassessed.”

Carl Lamb, managing director at Norwich-based IFA Almary Green, commented: “It seems nonsensical to me that my clients are being penalised by restricting their retirement options with the removal of capped drawdown meaning the only way to take drawdown income will trigger the MPAA rules.

“I can see a situation where a client that has previously needed to access some income, receives a redundancy payment but will be limited to using just £10,000 as a pension contribution, rather than £40,000 because of the additional restrictions, but all they want to do is protect their retirement income.

“I would urge a rethink on capped drawdown to ensure that this remains in place.”

peter.walker@ft.com

Additional reporting by Donia O’Loughlin