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Tory rallies MPs to fight for drawdown reform

by Daniel Grote on Nov 26, 2012 at 08:25

Conservative MP Alun Cairns is rallying support among his colleagues to call for reform of income drawdown, as savers continue to face dramatic cuts to the income they are able to take.

According to the Mail on Sunday, Cairns (pictured) expects to get the backing of 20 to 30 fellow Conservative MPs in his campaign to force Treasury ministers to act on the issue. Savers have been hit by April 2011 rules limiting the amount that can be taken to 100% of Government Actuary's Department rate, down from 120%.

Cairns told the paper he had been contacted by numerous members of his Vale of Glamorgan constituency angry at the drop to the income they can take. He said those hit by the change were 'Conservative supporters - successful entrepreneurs and businessmen. The changes are unfair and need amending'.

Sipp provider AJ Bell recently renewed its campaign to return the GAD rate to the pre-2011 level of 120% for those on capped drawdown.

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7 comments so far. Why not have your say?

It says something when a standing member of parliament can only identify changes affecting his party's key supporters - over 18 months after implementation.

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I don't remember any politicians complaining when the unsustainable120% limit was introduced!

The April 2011 change was coupled with reduced funds and reduced gilt yields and there should have been some transitional arrangements.

But fundamentally taking more than is sustainable is a recipe for disaster.

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To out a different slant on this, why is it that there is this obsession with preserving the capital until death? When it then passes to the estate/charity etc. Why can't something be formulated that allows for something based on the client actually using the growth/interest and capital over their lifetime. not everyone wants to pass thier estate down the line they may prefer to spend their own money. Surely an actuarial calculation can be done assuming say a 40 year lifespan at retirement where a client can spend their capital and interest. A sort of annuity taking into account the depletion of capital as well? Just a thought!

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W K Clark: are you suggesting an investment linked annuity?

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@ W K Clark

I agree that the rules are absurd at the moment as if one stays in capped drawdown it is impossible not to leave money in the pot which will end up with a tax gain for the government.

Perhaps that is why they are keen to keep the current unfair rules?

Investment linked annuities are not the same as apart from building in a 10 year guarantee then if the policyholder dies the money goes back into the insurance company pool for others to benefit from.

My solution, although it would need to be carefully costed, would be to allow the fund to be totally withdrawn if necessary over an underwritten lifespan, but insure against running out of cash.

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Clark,

I agree in principle. However, would these be the same actuaries who calculated the life expectancies in the traded life funds...

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W K Clark

Nov 26, 2012 at 11:44

@ David Trinner - No I am trying to think outside of the box so to speak.

@Jonathan - exactly my thoughts surely its not difficult to work something out along those lines. An insured option would be ideal so that monies can be returned if you don't make your life expectancy but an insurance to cover you if the monies ran out. IMHO the main reason people don't like buying annuities is they see it as getting interest on their fund which ultimately they lose.

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