Some pension providers are reporting a last minute rush in consumers applying for capped drawdown before the opportunity disappears next week, with one provider seeing a 250 per cent increase.
For instance, Suffolk Life stated it has seen a 250 per cent increase in the number of capped drawdown applications in the lead up to 6 April - a combination of current investors crystallising at least part of their plans and investors choosing to transfer their pensions in from other providers.
The move has been prompted by investors and their advisers looking to keep their options open when it comes to future flexibility over contributions, as those who use capped drawdown are able to contribute up to £40,000 per annum to money purchase pensions, as well as retaining the chance to carry forward unused annual allowance from previous tax years.
Suffolk Life’s analysis of its own book indicated that only around 1 per cent of drawdown investors actually continue to contribute after starting to take benefits from their plan and only a handful currently contribute more than £10,000 per annum - the maximum contribution permitted under the new rules which apply to flexi-access drawdown if they take income.
Those who are in FAD can still retain the £40,000 annual allowance if they do not income and continue to use carry forward of unused allowance.
Paul Evans, pension technical manager at the firm, commented: “Capped drawdown may benefit investors who need some of their fund now, for example to start a new business, but intend to put money back into their pension in the future.
“However, advisers should consider whether the benefits of additional flexibility outweigh the review costs and income limitations for their clients.”
John Fox, director at Liberty Sipp, told FTAdviser that he has seen “an awful lot of interest”, although most of it has been at the last minute and at a time when they are already busy with applications for clients putting new contributions into a Sipp.
“The consequence of the annual allowance dropping from £40,000 to £10,000 will be significant for many and a god send to the tax man, who will no doubt reap the benefits.
“My worry is that there will be people who still don’t know about the demise of capped drawdown and the consequences that this will have from 6 April; I am sure they will try and blame someone.”
Claire Trott, head of technical support at Talbot and Muir, said that while they have not seen a massive increase in capped drawdown over the last few weeks, she has been discussing options with advisers.
“Those that have chosen to enter capped are not doing this because they know they client will want to contribute over the £10,000 but more as a protection against the rules being imposed when they do not need to be.
“We wrote to the committee who was reviewing the legislation asking them to retain capped drawdown for new clients who didn’t want the money purchase annual allowance restrictions imposed on them, this to me shows that they should have listened.”