Thousands of drawdown investors may not benefit from more generous income limits, as their providers delay implementing the new rules.
The changes, due to come into effect from March 26, will result in existing “capped drawdown” investors, many of whom have suffered big income cuts in the past few years, being able to access up to a fifth more cash from their pension pots.
The move reverses a decision made by the government two years ago to cut drawdown income limits from 120 per cent of the rate set by the Government Actuary’s Department, or GAD, to 100 per cent.
For a 65-year-old with a £100,000 pension pot, the change will mean about £1,000 in extra cash each year.
The industry was given two months to prepare for the change, which will be available to new investors from March 26. However, the uplift will not be rolled out to all existing investors instantly, as some will have to wait until their next scheme income year before the uplift applies.
Many major providers, including AJ Bell, Hargreaves Lansdown, Suffolk Life, Dentons and Standard Life have already indicated that their systems will be ready to offer new and existing clients the higher income limits from March 26.
“The deadline for the industry was very tight, but it is only right that such a fundamental benefit to people’s income level is introduced at the earliest opportunity,” said Skandia, a pension provider.
However, some insurers are less certain that they will be able to offer the higher rate from the date of the rule change.
“The timescale is tight and that presents significant challenges,” said Aegon, which has 30,000 drawdown clients.
“We’re in the process of identifying those most urgent cases where eligibility to move to 120 per cent will apply from March 26 to be able to react to the demand as and when it arises.
“We’re confident we will be able to keep any disruption to a minimum.”
Scottish Widows, owned by the taxpayer-backed Lloyds Banking Group, said: “We are looking at how we can put in place processes to ensure that any customers who want the higher income are able to receive it.”
Legal & General said it was “aiming for changes to be in place for 26th March”.
Providers who will be ready are concerned for the clients of those who won’t. “The suggestion that some clients may be made to wait even longer than this because of systems issues, or because providers are going to force clients to wait until a full review of their benefits takes place will be a worry for many, “ said Andy Bell, chief executive of AJ Bell.
HM Revenue & Customs said it would not force providers to make the uplift available to their clients. “Each provider will make its own commercial decision about when to make the higher limit available to its customers,” said a spokesman.
“HMRC does not comment on the commercial decisions of pension providers.”