Revenue hints at U-turn over draft flexible drawdown rules

Including RPI annuities makes sense - the MIR test should just be at the lower end of the income band.

Scheme pensions with 20 or fewer members in receipt of payments should however still be excluded as they are likely to be anything other than guaranteed.

I am confused. Are we saying that as it stand, level annuities are included but RPI annuities are not. Surely this is a*** about face?!

Re scheme pensions with fewer than 20 members, I really don't see why they should be excluded. Size of scheme does not reflect financial strength. Also, it seems unfair that say schemes with 22 members, where 3 transfer away should go from an inclusive status to non inclusive status (when arugably they would be in a better position having got rid of laibilities). Surely however, size is largely irrelevant as even if there was an insolvency, pension of £20,000 per annum would be covered by the PPF and therefore the income is to all intents and purposes guaranteed in any case.

HMRC could easily solve the problem of the possibility of a negative RPI by allowing a clause in the annuity contract that puts a 'collar' of zero on the RPI rate - in other words, only allow the annuity to rise and never fall.

HMRC can't be seriously worried about Deflation protection,its just posturing, as they already own the key to operate the inbuilt protection mechanism ,-its called 'Quantitative easing' or printing money.

Philip - the scheme pension restriction was, I understand, not looking to exclude say occupational schemes, but more of the scheme pensions set up within SIPPs where there is no security of capital or income. Not what the MIR intended.

Thanks Greg. I commennted too early. As I posted I realised what was meant and that I had been far too eager to berate HMRC - I had just assumed that they had got it wrong! Thanks for the clarification

Surely smaller scheme pensions are more accurate from an actuarial point of view. The liabilities are clearer and therefore the pensions are more robust in smaller schemes.

I think the concern with RPI linked annuities is that many of them (esp with the big players) go DOWN if inflation goes negative.

It was as recent as May 2009 when this was happening and if the UK economy heads into double dip then we might see that again.

This months RPI figure is "no indication of future performance"

It is good to see a volte-face from HMRC about this as it was non-sensical as it stood. Having a flat rate £20000 limit is however another story, as is questioning the sanity of anyone opting to buy an RPI increasing annuity.

Paul - I'm not suggesting that you agree with the concerns, but with exception of a blip in 09 the last time there was deflation over a 12 month period was 1960 ( I think). Therefore can't really see how this is likely to be any more than a very short term situation re deflation (of a few months) and in any case over the medium to long term seems rather daft for them to have concerns that deflation will outstrip inflation. We have bigger problems than the MIF if this is the case, not least the fact that deflation will increase national debt so they have an incentive for inflation to run and run!

Seems however they they have seen sense, otherwise it could have potentially discouraged inflation linked annuities

Robin - the "zero floor" RPI option already exists. Some annuity providers offer strict RPI which can go up or down, others provide that negative indexation will be classed as zero, others guarantee not to decrease income but the overpayments will be offset against future increases, and some offer more than one of these as options! Hence advisers have a bit of research to do in terms of knowing which they are recommending to clients in all cases, regardless of the MIR issue.

And I agree that it makes no sense to exclude RPI-linked annuities given the infrequency with which it is likely to matter and that the principle that if the income met the MIR at outset, it could be considered to do so in relative terms if the only decrease was down to and in line with negative RPI.

Agreed it was late 1950s when UK RPI last went negative before 2009.

Though we might look at Japan. There were a lot of people investing in that miracle economy in 1989 @ 39,000 on the Nikkei and none were predicting years of deflation.

That said, i agree it is in the government's interest to keep inflation going at a modest pace to erode the debt and of course with no Gold link since the early 1970s there's not much to contain the printing presses.

But of course this is a fine balancing game. How much inflation will workers tolerate before demanding much higher wages ? My guess is "only a little more" which coupled with increased interest costs on their mortgage will nudge a lot of people into discontent.

All of the recent rafts of pension mis-regulation have (in my opinion) fatally damaged the concept.

And now here we go again.

Instead, think it through (based on a PROPER understanding of how these schemes actually might work) and then get it right.

Anything less is simply mis-regulation, a damned disgrace and petty tinkering, as well as a slap in the face to the many excellent and professional advisers out there who DO understand how these schemes were originally designed and who also have worked hard to understand the flaws that need to be genuinely addressed.

But of course, those who know best will presumably not be consulted.

After all, surely the bottom line is that these schemes should be sustainable throughout any and all financial circumsances?

Or am I just a fed up cynic???