Clarification needed for investment drawdown rules following change to minimum UK pension age

News - Living

Written by Ray Clancy

Friday, 23 April 2010 08:11

The raising of the minimum pension age in the UK means that income drawdown investors look set to be hit with a 55% unauthorised payment charge if they buy an annuity or switch providers before the age 55, according to experts.

Pension experts have slammed the ‘unintended consequence’ of the minimum pension age rising from 50 to 55, claiming those in drawdown and under 55 could be stuck there until aged 55.
Sipp trade body the Association of Member-directed Pension Schemes has written to HMRC for clarification after members drew their attention to the potential problem.

Richard Jacobs Pension & Trustee Services managing director Richard Jacobs said they wanted to highlight the issue after a client who invested in drawdown before the rule change who now wants to buy an annuity has been told by HM Revenue & Customs that it will not allow it.

‘If you were 51 on April 5, you could have bought an annuity. We assumed if a client went into drawdown they would still be able to buy an annuity at a later date. People who went into drawdown for the right reasons but now want to reduce risk could be stuck for a few years. HMRC has completely missed this unintended consequence,’ Jacobs told Money Marketing.

Axa head of pensions development Mike Morrison branded the situation as ‘ridiculous’ and agreed that the industry has been caught out by something that does not appear to be the intention of the legislation. ‘Having started taking an income from their pension, surely they should be able to move to an annuity or switch providers,’ he said.

‘Most individuals who began income drawdown below age 55 before the minimum age went up are not at present able to use any of their drawdown fund to buy an annuity without incurring unauthorised payment charges. This restriction applies until the individual’s 55th birthday,’ a spokesman for HMRC said.

HMRC could not comment further on whether it would be reviewing this as the department is effectively waiting for the new government to come in after next month’s general election.

But the Association of Member-directed Pension Schemes says that clarification will be needed as it is possible to interpret the rules in different ways.