Scottish Mutual has produced the following four decision trees to help advisers find the most appropriate route through depolarisation
The personal pension schemes (transfer payments) regulations 2001 introduced a provision permitting drawdown investors to transfer between providers.
This new concession creates significant opportunities for advisers, according to Scottish Life, as transfers could not previously take place once drawdown had begun.
Since its inception in 1995, the Inland Revenue has looked on income drawdown as a way of deferring annuity purchase while, for all intents and purposes, the client is in retirement. From the Revenue's point of view, the client was treated as if they had purchased an annuity ' the obvious difference between annuity and drawdown being the enhanced flexibility of the latter.
Clients or survivors taking income drawdown from a personal pension and wish to transfer their drawdown to a different provider need to take five rules into account:
• The individual must be under 75 and not have purchased an annuity already.
• The transfer payment must include the whole of the drawdown fund.
• On transfer, the client or their survivor must continue taking income withdrawals from the new provider. As this would be an ongoing drawdown arrangement, they would not be permitted to contribute further amounts into the plan.
• On receiving the transfer, the new provider will automatically recalculate the maximum and minimum income levels. These will be produced from the Government Actuary's Department tables and will be based on the member/ survivor's age and the current long-term gilt yield.
• Once the transfer has been completed, the drawdown fund must be invested with the new provider for at least one year.
But why should clients consider transferring from one drawdown plan to another? Scottish Life gives the following reasons.
• Good investment returns are the key to maintaining the level of required income and replenish the gap created by the mortality drag and the additional charges associated with drawdown. If a plan's performance is poor a transfer is an obvious option.
• Some early plans also had very limited investment choices and people could now benefit from a wider fund selection and access to external fund links.
• Early providers of income drawdown plans may have prohibitive charging structures and clients could benefit from a move to more modern contract with lower charges.
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