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Credit threat sparks a surge for pension cash

IFAs&#39 clients with small pension funds are opting for income drawdown so they can get their hands on their money, Money Marketing has learned.

Clients with small funds are increasingly turning to drawdown as an alternative to annuity purchase because they get more of their cash up front and dependants can get the remainder of the fund less tax on death, say IFAs.

Taking the maximum income permitted by the Government Actuary&#39s Department also has the effect of reducing the exposure of people with small funds to the negative effects of the pension credit means-testing assessment.

Richard Jacobs Pension & Trustee Services director Richard Jacobs says that placing small funds into drawdown can bring increased scrutiny from the FSA and the Inland Revenue but clients should choose drawdown because it increases their control over their money.

Scottish Life head of pension strategy Steve Bee says: “Every case is different but there could be some cases where recommending income drawdown for very small funds is best advice. This shows that people want to unwind their savings. They would not be doing this if the pension credit was not penalising their savings.”

Jacobs says: “You can tell your clients they would be silly to do this but they say they want their money now. With the bad publicity surrounding life insurance companies at the moment, it is hardly surprising that people want to get their hands on their own money.”

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