Revenue proposals to change income drawdown rules through pending pensions legislation will cost the industry millions, warns A J Bell.
The actuary group also believes suggested changes would – if they remain as they currently stand – reduce the income for those in income drawdown by up to 10% per year.
Andy Bell, actuary and managing director of A J Bell, says the new rules will prop up costs for pension providers offering income drawdown plans.
This is because they will have to calculate the maximum income available from these plans post-implementation of the coming legislation with reference to comparative annuity rate tables published by the FSA, Bell says.
He explains: "Whilst the FSA tables are well intentioned, they are a consumer information source and should not be used to underpin income withdrawal in the new simplified regime."
"We will all have to redesign our systems. I am sure that most within the industry will agree the current GAD tables work extremely well, even accepting that they are somewhat out of date," he adds.
Under current pension legislation, providers use annuity rate tables published by the Government Actuary's Department (GAD) to calculate the maximum income available under income withdrawal.
Bell argues: "Whilst the mortality assumptions underpinning the current GAD tables are nine years out of date, the system is one which has worked very well and does not involve any manual process beyond looking at the FT once a month."
However, Bell says, the pending rules will not only be more expensive but they will also lead to a drop of almost 10% in the maximum income that can be paid from income drawdown plans.
"Whilst I support the pension simplification proposals, this is change for change's sake and hopefully common sense will prevail," he concludes.IFAonline
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Reporting to Steve Hill
Appointed on 19 September