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Investors in race against time to retain 120% GAD rates

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IFAs face a race against time if they want to lock clients into the 120 per cent GAD income rates for the next five years, Suffolk Life says.

Treasury reforms ending compulsory annuitisation come into force in 12 days time. Under the new rules investors entering drawdown for the first time from April 6 onwards will have their maximum income calculated using 100 per cent of the GAD rate.

Providers often split pension pots into ‘units’, with each unit representing a fraction of the total fund. Suffolk Life, for example, splits its plans into 1,000 units.

Pensions technical manager Claire Brooks says clients could only need to crystallise one of those units to secure 120 per cent GAD rate for five years.

She says: “There are still opportunities for advisers to help their clients. If a client wants to take benefits now whilst in the process of moving providers, it may be possible to crystallise just one unit.

“Depending on the way in which the provider administers partially drawn plans this could mean that as they crystallise further units the limits will be recalculated using the 120 per cent of GAD rate instead of 100 per cent of GAD.”

A J Bell marketing director Billy MacKay (pictured) says: “The wording of the rules as they stand allows investors to lock themselves into the higher 120 per cent GAD figure for five more years by moving part of their pension into drawdown before April 6.”

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Readers' comments (5)

  • This is a little vague. The article refers to single arrangements which are inflexible and (may) provide a continued benefit of 120% of the basis amount upon further designation, but are currently dangerous as putting more money into a fund that drops pre 6/4 whilst having had an advance of the income (say annually in advance) could lead to an unauthorised payments charge. ................

    Post 6/4 there are many factors to consider...NONE have been explained in THIS article..for example, a fund that falls in value could see the entire SINGLE arrangement plan (those segments or "units") fall accross the board. ..................

    What about the impact of having to use 2011 GAD tables from 5/6/11 - which may reduce the income accross the SINGLE arrangement providers plans... .

    What about 21/12/2012 when unisex GAD rates are likely to be introduced, is logical, they are worse for some than the 2011 current tables what of your SINGLE arrangement (segmented or "units") then ?.......

    What about the article talking about those providers who offer a plan with MULTIPLE arrangements.. which makes it clear..because they are what they are between reviews, no further designation of the same SINGLE arrangement required and no loss if the fund falls at a time more money has been paid in etc etc, the "gamble" is ONLY on the NEW arrangements to be opended (which are unconnected and independent for this purpose)..UNLIKE the single arrangements (with their "units") where the gamble is for the entire lot ! ..................

    Providers offering "Multiple arrangements".. worth looking at if certainty is more desirable than a gamble.

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  • Beware of Aviva.

    I have attempted to have the quinquennial review on an existing (1996, £900k) drawdown rebased and failed. Not because such a request can not be actioned but because they have decided it will not.

    Am I alone on this?

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  • If you take into account product charges, fund charges, adviser charges, plus the fact that if the fund falls in value the level of income being drawn does not, until the next review date, then keeping ahead of the drain of 100% of GAD rate withdrawals, let alone 120%, is an almost sure-fire recipe for erosion of capital. For Suffolk Life, or anyone else. to suggest otherwise strikes me as extremely irresponsible.

    IMHO (and experience), Income DrawDown should virtually NEVER be used other than when the required level of income is substantially LESS than the maximum permitted, and the number of retirees who fit that profile is very small.

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  • Whilst I agree in part with Julian, I think you are overlooking phased drawdown. You want to vest the minimum number of segments to protect death benefits pre 75, and clearly 120% of current GAD will allow fewer segments to be vested, protecting more of the fund from 55% tax on death.

    Simon, re Aviva, did the client have a plan anniversary (or tranche anniversary) in the first quarter of 2011? If not Aviva could not have recalculated, as the post 2006 rules only allow a recalculation on a plan/tranche anniversary.

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  • Simon

    I have been looking into this. It appears that HMRC legislation gives the provider the ultimate say on whether to rebase the period

    Most providers i have spken to are prepared to rebase the period for a small admin fee. From your comment it sounds like Aviva is not one of those companies.

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