Whilst I can understand a reluctance to offer the full range of benefits to clients, I cannot understand the unwillingness to support a structure that gives clients more flexibility.
High on their list of provider’s concerns will be that some clients might want full control of their assets and, heaven forbid, take them outside of the wrapper altogether. My response to this would be that we should focus less on putting up barriers to customers leaving, and focus more on developing a strategy encouraging them to stay.
LV= are committed to providing a range of solutions to meet the needs of customers. Under the new regime, it is clear that not all customers’ needs can be satisfied without first registering for flexible drawdown. As a result, from 6 April 2011, LV= has introduced a flexible drawdown option under its Protected Retirement Plan.
The PRP is a fixed term annuity style product which provides a fixed income for a fixed term and a Guaranteed Maturity Value (GMV) at the end of the term.
The flexible drawdown option can be used in a number of ways. With no age 75 restrictions, clients can choose a term between 3 and 25 years with no income and GAD limits, providing the income is sustainable over the term. In fact, the new option allows the full value to be withdrawn in as little as two years and one day.
To maximise lump sum death benefits, the flexible drawdown option under PRP allows customers to vest only the income they need, thus keeping the majority of their pension fund unvested, making it available for their dependants free on tax on death before age 75.
This process of reviewing income requirements every 3 years and using the PRP as a mechanism for drawing income with no maturity value is an extremely efficient income and death benefit planning vehicle.
Our standard PRP allows customer to use the GMV to purchase an annuity, purchase another PRP, or transfer to another Drawdown policy. Uniquely under our PRP flexible drawdown option, customers now have the option to draw the GMV as a final income payment.
Similarly, the flexible drawdown option gives customers more choice on how to access any death benefit that becomes payable.
Most customers purchasing PRP style products include Value Protection, in order to ensure a lump sum death benefit in the event of their death before the end of the term. However, under the new regulations, any lump sum paid on death after benefits have come into payment will be taxed at 55%.
In order to avoid this tax charge, LV= now offers dependants the option to forego the lump sum, and draw the death benefit as an income instead. If the dependant is also eligible for flexible drawdown, they could then draw the full value of the death benefit as a one-off income payment. If the dependant is also eligible for flexible drawdown they could then draw the full value down as a one-off income payment – subject to income tax, but still resulting in a considerable potential saving.
The new regulations have increased choice and flexibility for customers, and have enabled providers to customise their product to meet specific customer needs. LV= has embraced this change, for new and existing customers – we will allow existing PRP customers to opt for Flexible Drawdown mid term and remove the GAD restriction on income mid term.
It is only a shame that some other providers appear not to have taken the same approach.
Matt Trott is Head of Annuities at LV=