Standard Life is calling for an amendment to the Pensions Bill to allow pension companies which do not offer income drawdown to pay tax-free cash and then hand the balance over to drawdown providers.
The call reflects concern over the thousands of executive pension planholders with tax-free cash over 25 per cent whose contracts do not offer drawdown.
Standard senior technical manager John Lawson says these people will have to transfer before A-Day if they later want to go into drawdown and keep their extra tax-free cash.
He wants to see firms allowed to pay investors their full tax-free cash and then pass the remainder of the fund to a drawdown provider, a process that is banned under current rules.
Demand for drawdown – which will be renamed alternative secured income and which will have different rules – is expected to increase after implementation of the Pensions Bill because of increased flexibility in taking benefits and opportunities to avoid the recovery charge.
Lawson says: “Is there a way that we can get around this? It would be daft if we could not. Pension providers' priorities will be to get the basic systems in order before adding the bells and whistles such as offering drawdown on all pension products.”
Momentum pensions specialist Mark Stopard says: “There are likely to be people, especially those with pre-1987 rights, who will want to go into drawdown at 55 to escape the recovery charge on future investment growth but whose current contracts do not allow drawdown. An alternative would have been for tax-free cash over 25 per cent to be registered but the life companies have not chosen to lobby on that angle.”