Skandia urges income drawdown shake-up

Skandia is calling for simplification of income drawdown rules to ease the “administrative nightmare” on advisers and simplify calculations for consumers.

A proposed shake-up of the costly and complex system should be considered alongside current consultations on buying an annuity at age 75 and pension tax relief restrictions, Skandia says.

It says the mish-mash of rules has created a chaotic system of divergent timetables in terms of both maximum income levels allowed to be taken and review dates.

This has created an "administrative nightmare for consumers and advisers", it warns

It is not uncommon for someone to have eight different income drawdown arrangements resulting in eight review packs all being issued at different times, making it difficult for advisers to recommend the right strategy.

The rules also make it difficult for customers to understand the overall level of income available to them.

As a solution, Skandia proposes merging the income drawdown schemes of different customers into one arrangement, thereby preventing manipulation of income levels resulting from short term fluctuations in the value of underlying pension funds.

"In enabling this, none of the arrangements involved should have recalculated income limits in the previous 12 months, either as a result of a five year review or an annual review at the customer's request," it adds.

The merger would be at the customer's request and result in a recalculation of income levels and a new five year review period, in line with the current requirements for the customer requested annual review.

Such a change in legislation should result in no individual needing to have more than two arrangements under one scheme, it adds.

"While the Government is undertaking a review of the age 75 retirement issues it should also consider simplification of the retirement structure available to advisers and their clients before they reach age 75," says Skandia pension specialist Adrian Walker.

"The complexity of the income withdrawal system is not only costly to administer for providers and advisers but does not provide for many clients an easy understanding of their available retirement income and how they can manage it."