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IFA warns drawdown reforms may alienate investors

Inland Revenue proposals to limit the death benefit available from drawdown plans will further undermine confidence in pension saving, warns The Drawdown Bureau.

The IFA claims that the reforms will benefit life companies to the detriment of investors.

Under current rules, if a drawdown investor dies before age 75, the spouse can take the pension fund as a lump sum less a tax charge, continue in drawdown or buy an annuity.

But the Revenue&#39s proposals limit the amount that the spouse can receive to the initial investment in the drawdown plan, less any income paid up to death.

Figures from The Drawdown Bureau show that, under current rules, a man who dies at age 74 having invested £1m at age 60 in a drawdown plan which achieves annual growth of 6 per cent gross would leave his spouse £1.7m if he drew down funds at the minimum rate allowed by the Government Actuary&#39s Department.

Under the new regime, his disposable fund would be £647,200, leaving a £1.05m windfall to the life company running the drawdown plan.

Life offices have called for the proposal to be dropped as they are concerned their reputation will be tarnished by receiving these windfalls.

Head of marketing David Marlow says: “There is no logic behind these proposals as only the life companies will benefit and in their defence they are unlikely to want to be tainted by this.”


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