Hornbuckle Mitchell has warned clients could face a tax hit as a result of providers automatically increasing their drawdown income to the new 120 per cent maximum.
Chancellor George Osborne announced in his Autumn Statement in December plans to raise the maximum income a person in drawdown can take from 100 per cent of the equivalent GAD annuity rate to 120 per cent from 26 March 2013.
Last month, Money Marketing revealed Standard Life and Skandia will automatically increase drawdown income for clients who had previously said they wanted to take the maximum. This will happen when the client reaches their next drawdown review date.
Scottish Life and Legal & General, on the other hand, will not increase a client’s drawdown income unless they receive an instruction from the client or their adviser.
Hornbuckle Mitchell has written to its drawdown clients and their advisers informing them of the new, higher income limit. However the provider will not increase a client’s income until it receives an instruction to do so.
Senior technical consultant Lisa Webster says: “Some people will have ticked the maximum income box knowing what the maximum was at the time. You can’t assume that they want the higher maximum just because they’ve ticked that box.
“For example, their maximum income might be £40,000. If you stick a 20 per cent increase on that they are now at £48,000 and have moved from being a basic rate taxpayer to a higher rate taxpayer.”