New Model Adviser - For Professional Investors

Register to get unlimited access to Citywire’s fund manager database. Registration is free and only takes a minute.

AJ Bell urges gov't to overhaul income drawdown rules

AJ Bell urges gov't to overhaul income drawdown rules

Sipp provider AJ Bell has urged on the government to reverse changes to income drawdown rules, arguing they have gone too far in reducing the income available to savers.

It said changes which reduced the maximum income limit from 120% of the GAD rate to 100% had been exacerbated by reductions to the GAD rate in February.

'The recent changes to income limits have tipped the balance too far in favour of downside protection,' said AJ Bell chief executive Andy Bell (pictured), in a letter to financial secretary to the Treasury Mark Hoban (pictured). 'Whilst drawdown investors accept that the downside protection is needed to prevent their income limits from dropping, I do not believe many will accept the slightly perverse situation that the main reason for a drop in income is the government's decision to change the rules to provide added protection.'

Bell called for the reduction in the maximum income limit to be reversed immediately. He said this should be followed by a policy review to determine whether 'slavishly following gilt yields' was the best way to set drawdown limits.

'There is a question whether it is appropriate for income limits to be based entirely on returns from an investment type that will only form part of a typical drawdown investment portfolio,' he said, adding that the scrapping of compulsory annuitisation had strengthened this argument.

'This adds to the argument for removing the link to an investment type which is associated with annuitisation on income limits for individuals who may never annuitise.'

Bell set out three alternative options:

1. Remove the link between current investment yields and maximum income drawdown income.

2. Replace gilt-based maximum drawdown calculations with one based on blended gilt and equity returns.

3. Retain the gilt based maximum drawdown calculation but reinstate the 20% uplift in income calculations.

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.
Comment & analysis