New pension drawdown limits

Loughton_Monkey

Zuzzie wrote: »

.....There is also another issue here. I am rapidly losing faith in my IFA. When he informed me that the rules were changing I did some initial investigating of my own and was under the impression that if I called for a new reference date prior to the next which was due after April then I would be able to continue with the 120% GAD allowance for the next five years. He told me adamantly that this would not be possible but since then I have seen this repeatedly mentioned on here and on the HMRC website. Have I been ill advised???

Yes you have. If it were me, I would be kicking my IFA to kingdom come.

Even though I don't use drawdown myself, I recall being harangued to death in the media about this. Radio. TV. Press. All saying in a loud voice: "GET YOUR DRAWDOWN REVALUED BEFORE APRIL 5TH".

Any IFA who didn't understand this is not worth dealing with.

jamesd

There were two changes. One reduced the limit from 120% of GAD to 100%, decreasing incomes by 18% (the 20% being removed). The other was a change in the GAD limits, another reduction. Both of those were known in March. There's also the 15 year gilt interest rate playing a role and it's currently at a very low level. And any change in the value of your pension pots between the last review date and the current one would also have had an effect.

You're at an age where new the limits are not sufficient for you to take as much income as sustainable investments can produce.

If you met the criteria to get a review done then yes, you have been wrongly advised.

Longer term the yield (interest rate) of 15 year gilts can be expected to increase over the next few years and that will eventually help to increase the income you can take. But it'll take longer into the recovery and some more sustained inflation before that happens. When you see increases in Bank Rate that will be a sign that things are on the way towards improving for your future income.

It's too late for you but for others here's how you work around the new limits for personal/defined contribution pensions:

1. Start taking pension benefits years before you expect to retire, at the highest rate permitted, and reinvest the money within a stocks and shares ISA. This will produce a pot of money outside a pension that you can draw on to top your income up to the long term sustainable level. You'll also need to consider more life assurance cover unless you are happy for a tax free transfer of the pension pot into a pension pot of your beneficiaries. This is because there's tax on the pension pot if it's inherited outside a pension.

2. Consider more contributions into S&S ISAs and non-tax wrapped investments to allow drawing at a long term sustainable rate. This is most likely to be appropriate for contributions from basic rate income, not higher rate.

Between those measures it should be possible for those who plan ahead to handle things. Not for those already retired, who were given minimal notice of a large drop in their incomes.

SallyG

In this situation where the IFA has given damaging advice, what are the chances of repairing the financial damage by reclaiming the cash that's been lost as a result of the IFA's incompetence/negligence?
I've experienced trying to claim damages from a solicitor in a pension on divorce matter and at the end of the process I was told that the proven omission I complained of that led to financial loss was a matter of "professional judgement" and therefore not susceptible to any claim by me.
Do complaints about IFA advice have this same fatal flaw?
Could the IFA in Zuzzie's case argue they were using their professional judgement to protect the best interests of their client, regardless of the express or unrecorded wishes of the client?
How do you prove what the IFA advised in a face to face meeting?

dunstonh

In this situation where the IFA has given damaging advice, what are the chances of repairing the financial damage by reclaiming the cash that's been lost as a result of the IFA's incompetence/negligence?

The IFA in this situation doesnt appear to have given damaging advice. The OP hasnt mentioned the month of review.

However, advice does give consumer protection.

Do complaints about IFA advice have this same fatal flaw?

If it is an area where a judgement call needs to be made and that judgement turns out wrong then you have no grounds for complaint as long as the reasons for the judgement call are sensible. A lot of advice areas are trying to guess the unknowns. Tax changes, legislation changes, unforeseen events can all change advice that was once suitable or a sensible judgement.

if it is an area where it is black and white then its much easier.

Could the IFA in Zuzzie's case argue they were using their professional judgement to protect the best interests of their client, regardless of the express or unrecorded wishes of the client?

In this case it is not a judgement call. Its a black and white decision. We don't know Zuzzie's review month. If its say July, then the advice was correct. If it was December then the advice was incorrect. No judgement required.

How do you prove what the IFA advised in a face to face meeting?

IFAs provide their advice in writing. Discussions that occur face to face are very difficult to prove anything either way and are typically trumped by the documentary evidence. There is an acceptance that around 70% of what is said in a meeting will be forgotten within a very short period or not taken in fully or misunderstood. So, the written report is the key document.

To protect themselves from complaints, IFAs will often create an activity log which gives summary points of what a meeting was about. If the meeting was about an issue that includes advice you will often get a formal summary report issued. If its admin related issue without advice then not normally. Single premium increments to existing single premium investments dont require new reports to be issued. Also, other audit trails can exist, such as emails, which provide a very good history of discussion.

Ultimately, you get the 4 truths scenario. What you say happened (based on your memory), what they said happened (based on their memory), what actually happened and what the documentation indicates happened. The latter is the key one considered.

Loughton_Monkey

As I read it, although patently not knowing all the facts, it's less to do with giving 'damaging' advice. More to do with not giving 'obvious' advice.

If, for example, you were not contacted at all, then I really don't know what the (current) thinking would be on the IFA. If I had an IFA who didn't tell me that ISA allowances were going up from £10,200 to £10,680, I would be pretty miffed, but has he done any 'wrong'?

But it seems he bothered to tell you about all the changes. What he seems to have neglected was to tell you about a 'wrinkle' [that I recall was very prevalent in the media at the time] which would have involved invoking an extra (or early) 'revaluation' in order to give you up to a 5 year 'holiday' of 120% drawdown entitlement. Pretty sloppy in 'layman's' language. But I wonder what a court would make of this one!

jamesd

They key thing here is the review date. There were restrictions on who could get the older 120% based on just when their review date was.

We're also in a transitional period where providers can choose to use either the older or newer GAD tables. Which is better depends on your age.