HMRC eases pension drawdown transfer rules

HMRC has eased pension drawdown rules to prevent people who transfer their fund suffering a drop in income as a result of low GAD rates.

The change has been made after experts raised concerns existing rules would put people off switching providers.
At present a drawdown review is triggered on the drawdown anniversary after someone decides to transfer, even if they had locked into a five year review prior to April 2011.

When a drawdown review is triggered the GAD rate upon which an investor’s income is based reverts to the prevailing rate at the time of the review.

Gilt yields have plummeted in recent years, leading to falling GAD rates. Suffolk Life says this meant investors could have ended up with a lower income if they decided to transfer their pension, despite the Government’s decision to raise the GAD maximum from 100 per cent to 120 per cent.

As a result, HMRC has decided from 26 March a pension transfer will not automatically trigger a drawdown review.

Suffolk Life pensions technical manager Claire Trott says: “People have not transferred because there was a danger they were on a GAD rate which is higher than they would get now. That is the big issue. This change means drawdown investors can now transfer without that concern.”
Source: Money Marketing Tom Selby 12th March 2013

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