Return to 120% of GAD and ensuring SSASs are properly run
Contributed by MW Pensions
25 March, 2013
Contributed by MW Pensions.[www.mwpensions.co.uk]
This newsletter is meant for financial and other professional advisers. Members of the public should not rely upon it
Drawdown back to 120% of GAD
HMRC have issued draft legislation that will restore the maximum Fixed Drawdown pension level to 120% of GAD. These are to be Clauses in the Finance Bill. The current proposition is that the return to 120% of GAD will be effective from 26th March 2013, but it could be later if, for some reason, the Finance Bill is delayed. They cannot come into force until the Bill is enacted.
It will apply to all drawdown pension years starting on or after 26th March 2013 (or such later date as the Bill may be enacted). HMRC have confirmed that a member in drawdown can elect to increase their pension up to the 120% limit at the start of their pension year that immediately follows 26th March 2013. So someone with a pension year from 1st May can increase their existing pension level to the 120% with effect from 1st May 2013, without requesting a formal review of their pension. Obviously if they are due for a full formal 3 or 5 year review at that pension anniversary, then that will take place at that date.
It must be remembered that a members pension year starts on the date they first started to draw benefits and a review can only take place on that anniversary. So if someone had a pension review, or commenced drawdown on 20th March 2012, they will have to wait until 20th March 2014 until they can take advantage of the 120% level. If they request a review as at 20th March 2013 it will be limited to the 100% GAD limit.
Those whose last review was prior to 6th April 2011 was and are still on the 120% of GAD basis, will therefore, at the time of their next pension review, retain their 120% GAD maximum (provided their review date is not before 26th March 2013). However they may still suffer a reduction in their maximum pension due to the reduction in 15 year gilt yields since their previous review and the new 2011 GAD rates that take account of improving expectation of life.
To highlight the way that GAD rates are affected not only by the 120% but also by 15 year gilt rates, the table below shows the maximum drawdown at various calculation dates for a male aged 65 with a fund of £100,000:
GAD interest rate
100% GAD pension
120% GAD pension
*2006 GAD tables, all others on 2011 tables
Small Self-Administered Pension Schemes (SSASs)
As we have previously reported, HMRC are beginning to look closely at SSASs where there is no Professional Trustee. They are concerned to ensure that they are being properly administered.
We recently came across an example where the son of one of the member trustees had elected to transfer out of the SSAS into his SIPP. Through ignorance the member trustee had drawn a trustee cheque for the transfer amount made payable to the members son and was going to instruct him to pay a personal cheque for the same amount into his SIPP! Fortunately the IFA became aware of what was being proposed and ensured that the correct procedure was adopted.
So if any IFAs have SSAS clients who do not have a Professional Trustee
We are also finding that we are taking over the administration and trusteeship of a growing number of SSASs, mainly because the client is either unhappy with the quality of the administration service being provided and/or the level of fees.
We remind advisors that we charge no take on fee for an existing SSAS. Our annual fee for a SSAS is £1200 plus VAT, which is inclusive of providing Professional Trustee services.
Gilt Yield for Drawdown
The gilt yields to be used for drawdown calculations are:
We do not give financial advice and no comments here are intended as such. The above information is based on our understanding of the legislation governing pensions at the time of writing. Before taking any action you should consult a qualified financial and/or tax adviser. Levels, bases of and reliefs from taxation may be subject to change.
This Newsletter is intended for professional advisors only, not members of the general public
MW Pensions Ltd
Oaklands Park, Hooton Road
Hooton, South Wirral
Tel: 0151 328 1777 Fax: 0151 328 0707
Authorised and Regulated by the Financial Services Authority
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