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Simple truth is that client is worse off

I am involved in dealing with a client who has two individual pension arrangements, one with Legal & General and one with Friends Provident, in respect of the same employment.

One fund value is about 240,000 and the other is 150,000. The bigger fund value has the benefit of very attractive guaranteed annuity rates. If the client had reached normal retirement date in April, his pre-A-Day tax-free cash would have been 145,000 and we could have chosen where this was generated. Obviously, it would make sense to draw it from the fund that did not benefit from high guaranteed annuity rates.

After A-Day, although he can still have the higher level of tax-free cash, it has to be taken equally from the two arrangements. The upshot of this is that the client has to take tax-free cash from the element with the high guaranteed annuity rates and although his tax-free cash payment is unchanged, he is about 600 a year worse off. This does not seem to be equitable.

What has happened is that the client is worse off, Gordon Brown will have less tax to collect and one of the providers has escaped part of the impact of the guaranteed annuity rate. Why?

It seems to me that the spirit of simplification has made this whole matter more complicated to the disadvantage of the individual. Surely that was never intended.

Mel Boustead
Barbican Independent Financial Advisors


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