Out with the Old??
I may well be stating the obvious but what an interesting year it looks like we have in store, with the new flexi-access pensions regime coming into force in April. This year is my 20th in SIPPs and I am happy to report that sexy pensions are definitely on the way - we will be engaging with you shortly for your feedback on our ongoing product development in this area.
In the meantime it is easy to overlook the fact that some of the changes have an effect now, and there are points which are worth thinking about:
From 6th April 2015 capped drawdown will not be available for those taking benefits under an arrangement for the first time. However, clients who are already in a capped drawdown arrangement before 6th April can:
(a) continue with their capped drawdown pension; and
(b) vest any uncrystallised funds after 6 April under the capped drawdown arrangement using capped drawdown rules.
Why is this relevant? Well, because while flexi-access drawdown (FAD) offers much needed simplicity for a lot of clients due to the potential increase in pension withdrawals, it does bring with it restrictions on future contributions via the £10,000 money purchase annual allowance (MPAA).
Some clients may want to draw benefits within the capped drawdown limits after 6 April but still have the ability to pay contributions at a future date up to the £40,000 annual allowance. For these, going into capped drawdown before 6 April may make sense – they only need to put part of the arrangement into capped drawdown to benefit from this.
Of course, if there is a need for the client to receive a pension in excess of the maximum GAD, this option is still available by switching to flexi-access, but would be used only when or if required.
Expressions of Wishes
The new option of a Nominees’ Drawdown Pension on death provides significantly increased flexibility, with the possibility of income payments to beneficiaries other than dependants, tax free on death before 75 and taxed at the recipient’s marginal rate on death after 75.
A review of existing expressions of wishes might make sense – if the aim is for income payments to be made to children, grandchildren etc under a Nominees’ Drawdown Fund, then they need to be nominated. This option is also available for those who die before 6 April, so an urgent review might be needed in some situations.
Don’t forget that the previous definition of block/buddy transfers has been relaxed to allow protected pension ages or lump sums to be preserved under individual transfers before 5 April 2015, so long as all the benefits are taken by 5 October 2015.
There are a few strings attached, but bearing in mind that buddy transfers were previously nigh on impossible, this may be of value to some of your clients.
On a more general point it is worth noting that the new rules are generally available via statutory override, but at the provider’s discretion. The point here is that providers are not compelled to offer this new flexibility and it would be prudent now or in the near future to get confirmation from your providers on their plans in this respect. We will be making all the new flexibility available, and are currently upgrading our systems in this respect.
As always we would be happy to guide you through any of the above and the forthcoming changes in legislation, feel free to get in touch. Our guidance notes have been updated and can be accessed via our website.