The Government has dealt a blow to pension providers after it blocked the use of scheme pension to fund the flexible drawdown minimum income requirement for the majority of Sipps and SSAS.
Under the new rules, savers must demonstrate secure annual pension income of £20,000 in order to qualify for flexible drawdown.
A draft statutory instrument, published alongside last week’s Finance Bill, says payments of scheme pension will not count towards the MIR, unless it is paid from a money purchase scheme with 20 or more pensions in payment.
AJ Bell technical marketing manager Gareth James says this rules out the majority of Sipp and SSAS products, including family Sipps, being used to reach the minimum income requirement.
James says: “In terms of the SSAS and Sipp market, very few scheme pension arrangements will have 20 members or more.
“As it stands, this will rule out the products which have been marketed as offering scheme pension to satisfy the minimum income requirement for flexible drawdown, although I would exp- ect there to be fairly exten- sive lobbying to have the rule changed.”
MoretoSipps director John Moret says: “This will be a huge disappointment for all those people who have been talked into using scheme pensions who now will not be able to take advantage of flexible drawdown.”
The James Hay Partnership business development director Richard Mattison says: “We are disappointed but it is not a surprise because we anticipated something like this could happen.
“I do not think it is the end for family Sipps or for scheme pension though because other benefits of scheme pension, such as the ability to increase annual pension payments if a person becomes ill, means products such as the family Sipp will remain attractive for certain investors.”