20th July 2011

LV= The Waiting Game

Sometime in the next 3 or 4 weeks – before our friends in the House of Commons break up for their annual 6 week sojourn – the Finance Act should receive Royal Assent. Why is this important? This time around, as well as the usual raft of tax changes, the Act will include the detailed legislation that puts the new Flexible Drawdown regime in place.

With many providers deciding that they couldn’t possibly offer this product until Royal Assent was granted, some hoping that they would wake up and Flexible Drawdown would all have been a bad dream, we should see a raft of new product launches over the coming months.

So what does this mean for the most important people out there - the advisers and their clients who have been waiting for this game-changing moment in the world of pensions to come along? Unfortunately for many it will be another case of waiting for a little longer. The general lack of appetite within the industry to offer Flexible Drawdown – whether due to legislation or simply a resource challenge dealing with all the necessary changes – mean that for many advisers some of the messages about the key rules surrounding Flexible Drawdown won’t have filtered through. Strangely, providers marketing and sales teams are less keen to communicate on such matters if they don’t have a proposition in place to sell at the end of the discussion!

So what are the key things advisers will need to bear in mind to make this opportunity work for customers?

Firstly there is the Minimum Income Requirement. Most people know that this is £20,000. Some will have gleaned that only certain types of ‘secure’ income will count. Some will even have seen the change of mind over scheme pensions (20 or more members in the scheme)  and annuities - a bit of the hokey-cokey here, in, out shake it all about, but currently ‘out’ unless they cannot fall as well as rise, although Royal Assent might change this. What many may not have picked up on is that the MIR of £20,000 must be paid in full in the tax year in which the individual elects for Flexible Drawdown. So any income ‘purchased’ now with a view to meet the MIR must pay out at least £20,000 before next April. This requirement may see some waiting until the start of the next tax year to make their Flexible Drawdown choice.

In a similar vein, clients must not have made any pension contributions in the year which they elect for Flexible Drawdown. So making a pension contribution in a tax year will find themselves waiting until the next tax year until they can take advantage of Flexible Drawdown.

So while we might assume that Royal Assent means the waiting game is over it may not quite be the case. Come to think of it, if the real opportunity is in the next tax year, why should providers rush to bring their respective Flexible Drawdown offerings to market before then? No doubt some will be using this as a reason to further delay the inevitable.

In my view –a view shared by many others – Flexible Drawdown really could be a game-changer, not only in terms of offering flexibility in retirement over income, but also in term of holistic tax planning and structuring death benefits to meet changing client needs. Rather than hiding behind technicalities we should be embracing this opportunity now and demonstrating that as an industry we are ready to provide advisers and customers with all of the information and product options when they need it – not simply at a time that’s convenient to us. The slow response to the opportunities presented here almost gives you the impression that – like MPs – the industry seems to go on holiday for half the year! Not an impression we should be looking to create.

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