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AJ Bell calls for capped drawdown to be scrapped

The Government is facing calls to scrap capped drawdown and restrict the amount savers can contribute to money purchase schemes to £10,000.

Following radical reforms announced in this year’s Budget, capped drawdown will be removed as an option for savers from April 2015. However, those who already have a capped drawdown contract will be able to continue to contribute into their fund.

While savers who use the new Budget flexibilities will see their annual allowance cut from £40,000 to £10,000, those already in capped drawdown will be able to retain the £40,000 limit.

AJ Bell chief executive Andy Bell  says: “This is by far the biggest issue I have with the proposed rules. Capped drawdown has been retained solely so that a tiny percentage of over 55s who are already in capped drawdown can keep an annual allowance of £40,000. Is there a genuine need to retain a complex capped drawdown regime for just this one reason?

“Retaining the capped drawdown system for this small group of individuals is likely to mean that retirement products are both more complex and expensive for many of those who happen to remain in capped drawdown. A much simpler solution would be to bite the bullet and just reduce the annual allowance to £10,000 for all of those taking pension benefits, regardless of how those are being taken, or when they started.”

As part of its pension freedom agenda the Government wants to introduce “flexi-access” drawdown that means people can take lump sums directly from their funds without facing a 55 per cent tax charge.

Savers will also be allowed to take ad hoc lump sums known as ’uncrystallised funds pension lump sums’ from age 55 and get 25 per cent of each sum tax free. Unlike the past this will not trigger the need to buy an annuity or enter drawdown.

But Bell says the Government should go further if it really want to simplify the pensions tax system/

He says: “In practical terms there is no real difference between someone taking the new ’uncrystallised funds pension lump sum and taking everything out of a flexi-access drawdown fund, so it isn’t clear why both options are needed.

“It is possible that the uncrystallised funds pension lump sum is being introduced for the benefit of those providers who won’t be able to offer the drawdown option, but can deal with a one-off lump sum. If that is the sole reason, there must have been simpler ways to deal with this.”


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  1. Ancient Britain 8th August 2014 at 4:13 pm

    I have to whole heartedly disagree with Andy Bell’s call to scrap capped drawdown. The Government has proposed keeping the limit as long as individuals currently in drawdown do not go beyond the capped drawdown limits from April 2015. Unusually for politicians this seems a fair and reasonable suggestion and one that should be welcomed. Why should individuals who have made decisions on the current rules and who are not using flexi-access be penalised. It actually seems straight forward as proposed. In addition, if someone in capped drawdown does utilise flexi-access then they fall under the £10,000 AL.

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