HM Revenue & Customs (HMRC) have announced greater flexibility in respect of income drawdown (unsecured pension) reviews.
Until now, investors who took tax free cash and income in stages from their pension plans would have a different review date for each tranche.
This meant an investor could have numerous reviews each year, incurring additional costs and complicating the administration and income calculations.
This month HMRC confirmed it will update guidelines to allow investors to align their pension tranches by both shortening and lengthening years.
This move will provide greater flexibility and enable income drawdown plans to be simplified, reducing both costs and administration.
We are still hoping to see some additional flexibility with regards to income levels from unsecured pensions.
The recent reduction from 120% to 100% of the equivalent annuity level, along with falling gilt yields driving down GAD rates, has resulted in many income drawdown investors having much lower levels of income.
We will be keeping a close eye on the Budget on 21st March to see if any additional changes are made to these rules.
Edit: Thank you to Gareth James from the SIPP provider AJ Bell who has been in touch with some additional information.
The merging of pension years, as described in our blog above, is only available once an individual using income drawdown reaches age 75. What is described in this blog is a change to HMRC guidance, rather than the rules, as a result of Gareth lobbying HMRC for clarification.
Gareth points out that care needs to be taken when lengthening a pension year to align review dates, as the maximum available income would need to be spread over a longer period of time e.g. 20 months rather than 12 months.
