Investment Life & Pensions SIPPS Supplement June 2014 | Página 3

May 14_23.qxd

08/05/2014

09:32

Page 1

SIPPs and
Drawdown

Flexibility will flourish
Robert Graves suggests that the SIPP with its inherent
,
flexibility, should be well-placed to take advantage of
the change in Government pension policy
Self-invested personal pensions (SIPPs)
are synonymous with offering individuals
a significant degree of flexibility, not only
with regard to where their pension fund is
invested but also with regard to how they
can draw income from their fund.
Although the Chancellor in his 2014 Budget
speech stated that ‘most people still have
little option but to take out an annuity’, those
in SIPPs will generally have had not only the
ability to purchase an annuity, but also the
options of capped drawdown and flexible
drawdown, with some SIPPs even offering
the option of a scheme pension.
Pension changes
To broaden options for more people, it was
announced in the Budget that from 6 April
2015 those aged 55 or older will be able to
draw as little or as much income as they like
from their defined contribution pension fund.
In advance of this, from 27 March 2014
certain easements were put in place for the
current capped and flexible drawdown rules.
So how will these changes affect SIPPs?

Firstly, the specialist option of a scheme
pension via a SIPP will disappear. The key
benefit of the scheme pension option is that
it can often provide a higher annual income
than either the annuity or capped drawdown
options, particularly for clients in poor
health. However, with the prospect of there
being no restriction on what can be drawn,
its raison d’etre as a SIPP retirement income
option is no more.
Flexible drawdown
With regard to flexible drawdown, it is
interesting to note that prior to the Budget
announcements, this facility already offered
SIPP clients the ability to draw as much or
as little income from their fund as they liked.
However, this was conditional on having a
minimum amount of secure income of
£20,000 a year and therefore in reality was
not open to many people. The reduction in
the minimum income requirement to
£12,000 a year from 27 March 2014 does
make the facility more accessible, but is
likely to be of interest mainly to those who
already have a secure income of that size

and do not need additional secure income
to qualify.
For example, if a 65-year-old client has a
£6,000 secure income from the state pension
and is looking to qualify for flexible
drawdown by purchasing an additional
£6,000 of secure income via an annuity, they
may have to use in the region of £100,000 of
their fund to do so. The question to be
answered is why would someone wish to
lock up £100,000 of their pension fund to
access flexible drawdown for the rest of their
fund, when in less than a year’s time they will
have full access to their entire fund with no
requirements for a minimum secure income?
It should also be noted that to apply for
flexible drawdown, all pension contributions
or pension accruals must have stopped
before the start of the tax year of application.
Therefore for any clients contemplating the
option now, if any contributions have been
made in this tax year, then flexible drawdown
will not be an option open to them and they
will have to wait until 6 April 2015.
Capped drawdown
With regard to capped drawdown, the
increase in the maximum income allowed
from 120% of the basis amount to 150%,
which came into effect from 27 March 2014,
may be welcomed ahead of the removal of
these limits altogether in April 2015 by those
entering capped drawdown for the first time.
However, for those already in capped
drawdown, they will have to wait until the
anniversary of their drawdown plan in order
to gain access to this additional 30%. As
SIPP providers may make a charge for
recalculating and adjusting the drawdown
income, then demand for the uplift is likely to
reduce, the closer a client’s drawdown
anniversary is to April 2015, when they will
have full access anyway.
There is much speculation as to the tax
planning opportunities that may then arise
when full access to funds is given, but the
devil may be in the detail of the yet to be
published legislation governing this change.
All the same, the SIPP with its inherent
,
flexibility, should be well-placed to offer full
advantage of this change in Government
pension policy.
Robert Ʌٕ́