Advisers must ensure clients are not caught out by little-known flexible drawdown rules this year, SIPP provider Talbot and Muir warns.
Flexible drawdown, in which an investor can make unlimited withdrawals provided they meet a minimum income requirement (MIR) of £20,000 per year, became available on 6 April.
However, Nathan Bridgeman, director of pension consultancy at SIPP and SSAS administrator Talbot and Muir, warns there are extra caveats IFAs must be aware of.
"Most IFAs have missed the fact that if you want to go into flexible drawdown this year, you cannot be an active member of any pension scheme," Bridgeman says.
He explains this is because higher rate taxpayers could be able to circumvent tax relief rules by taking drawdown at 20% or 40%, and placing it into a pension scheme with tax relief at 50%.
"If clients have made or wish to make a contribution to a pension scheme before 5 April 2012, their flexible drawdown application will be refused and they will have to wait until next tax year," Bridgeman says.
Bridgeman says there are other warnings for clients who wish to access flexible drawdown as quickly as possible.
"An investor could crystalises some of their fund this year to meet the MIR, but we are already in the 2011/12 tax year," he says.
"So those clients would have to purchase an annuity worth more than £20,000 to ensure they will receive at least £20,000 before 5 April 2012."
And then prepare yourself
Aims to double client base
Work with wealth management team
Reduces chances of rate hike
'Following the letter, but not the spirit, of the rules'