Fiona Murphy looks at AJ Bell's recent wish-list for pension reform, including calls to scrap flexible drawdown, and asks other industry players for their views.
Recently, AJ Bell called for the government to carry out a fundamental review of pension rules, including the reformation of capped drawdown and the scrapping of flexible drawdown. These points particularly have got industry figures talking.
In a statement, AJ Bell chief executive Andy Bell warned that constant rules tinkering since the advent of pension simplification had undermined public confidence, and while auto-enrolment should repair some damage, the government must recognise parts of the current system are not "fit for purpose."
As part of the review, Bell would like to see the government:
• Recognise that the annual allowance is now low enough to limit savings to a reasonable and economically sustainable level and scrap the lifetime allowance to reflect this.
• Remove the doubts over the investment rules which govern pensions by publishing a permitted investment list.
• Consider the need for flexibility in the circumstances when individuals can access some or all of their tax free lump sum or pension before age 55, including rules governing ill-health pensions.
• Scrap the current flexible drawdown system and reform capped drawdown to reflect its use in the 21st century as an alternative to annuities.
• Remove the link between maximum drawdown limits and annuities that is an out-of-date relic from the launch of drawdown 18 years ago when drawdown could only be used to delay the annuity purchase.
The last point was perhaps the most controversial, with the industry debating whether or not flexible drawdown was a good thing.
AJ Bell marketing director Billy Mackay says: "Everybody's grabbed onto the fact we've talked about scrapping flexible drawdown. They've all said it's a great tax planning tool. If you look back to when it was introduced, very few companies said flexible drawdown was a great planning tool.
"The suggestion that everyone would raid their pension fund didn't turn out to be the case because people didn't want to take out money from their pension fund to be taxed."
Mackay says perhaps there is a space for a regime which incorporates the best characteristics of capped and flexible drawdown.
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