Flexible Drawdown Not Compulsory For Pension Firms

Flexible Drawdown Not Compulsory For Pension Firms.

As we have said to many clients after the Budget 2014, the Treasury has now confirmed that whilst pension flexible drawdown is now law and is available to all people in the UK from 2015, pension companies are not legally obliged to offer it.

What does this mean?
It is now law that you are not forced to buy an annuity with your pension and can drawdown as much or little from your pension fund as you choose.
Flexibility for all starts in 2015.
Subtle difference: By flexible drawdown being allowed under HMRC Pension Rules, this does not mean a pension scheme has to offer it.

Why not we hear you say?
This is no different to many other pension laws.
A personal pension does not have to offer self-invested personal pension options (SIPP)
An occupational investment linked pension does not have to offer drawdown.
A pension scheme does not have to offer early retirement facilities.
A pension scheme does not have to offer a full range of funds, it can offer limited funds or a huge range as it sees fit.

Comment
Pension Law is not the same as Pension Scheme Rules.
What we are talking about here is that pension tax law is one thing and what the pension scheme then offers is another as part of the pension scheme’s rules.  Any pension fund will have sought approval from HMRC to be approved as a tax efficient pension scheme.  Provided it complies with core tax law, it does not mean it has to offer all the flexibility that is allowed.  This is a commercial decision for each pension company.  Some pension companies will offer greater flexibility but higher charges, others will prefer a basic, simple pension scheme with lower operating costs and charges.

Does this mean I cannot have flexible drawdown?
No it does not.  It may mean that you have to consider and take advice on whether to transfer or not to a pension schemes that offers flexible drawdown.  This may or may not be good news for you.  Some older style pensions have very high charges, so you may be better off transferring your pension anyway.  Other older style pensions may have hidden gems like maturity bonuses or guaranteed annuity rates, so it may be in your best interests to transfer.

The issue of transferring a pension scheme is a minefield and you need to take advice before taking such an action.  Contact us.