Interactive Investor - calculation of 25% tax free cash when holding Index Linked Gilts

mdonaldo

Just thinking about a phased drawdown workaround. Tax-free cash is taken when you designate uncrystallised assets for drawdown. 

So provided you only designate each index-linked gilt for drawdown once they've redeemed, then you'll always get their full value. 

That is, you wait until each linker turns into its equivalent lump of cash, designate it for drawdown, take 25% tax-free cash. 

Sparschwein

AJ Bell is saying in that case, that they are showing one value in the portfolio view but will then go on to deflate the value of the asset when providing a PCLS valuation.

That's surely based on a misunderstanding. I makes no sense for the provider because it means *more* work to find a different value than in the portfolio view. An overworked customer service rep may easily lump linkers in with other bonds and forget that besides clean and dirty price there is a third option. 

In fact AJ Bell told me the opposite, in writing. I asked "When calculating the 25% tax-free lump sum from the SIPP, do you use the valuation of the Inflation-linked bond as A) the clean price or the dirty price (the actual market value) or C) the clean price incorporating inflation-adjusted principal?"
AJ Bell wrote back "C".

Lowtrawler

Sparschwein said:

AJ Bell is saying in that case, that they are showing one value in the portfolio view but will then go on to deflate the value of the asset when providing a PCLS valuation.

That's surely based on a misunderstanding. I makes no sense for the provider because it means *more* work to find a different value than in the portfolio view. An overworked customer service rep may easily lump linkers in with other bonds and forget that besides clean and dirty price there is a third option. 

In fact AJ Bell told me the opposite, in writing. I asked "When calculating the 25% tax-free lump sum from the SIPP, do you use the valuation of the Inflation-linked bond as A) the clean price or the dirty price (the actual market value) or C) the clean price incorporating inflation-adjusted principal?"
AJ Bell wrote back "C".

Based on the posts from the first 2 posters, I also reached the conclusion I had been misinformed and AJ Bell would be a suitable provider for an in specie transfer. Your post has confirmed this. 

If the Ombudsman does not find in my favour, I will make additional enquiries with AJ Bell and likely initiate an in specie transfer to them.

mdonaldo

@Sparschwein - thanks for the update. That's much more reassuring and makes more sense. "C" is the price shown on the platform. I've asked AJ the same question so will report back. What are the chances I get a completely different answer? 

mdonaldo

AJ Bell tell me the valuation would be "with indexation included." 

I'm gonna keep that email on file. 

Lowtrawler

FINAL CONCLUSION

I have had a final response from the Ombudsman, extract shown below. In essence, ii provided incorrect advice previously on using the clean price when claiming the PCLS and will perform a calculation based on the dirty price. Panic over and case closed.

"Upon referral to our service, II have reviewed this again and queried this further with their Pensions Team. They have explained that the information given to you on 30 April 2025 was incorrect. Whilst the clean price is shown on the portfolio as this is an indication of its value from the London Stock Exchange, they have clarified that when requesting your 25% lump sum or selling your investments, the dirty price would be used. II have confirmed that to ensure accuracy, the dirty price will be manually calculated when you come to sell or take a tax-free allowance.

Your complaint was raised with us as II had previously confirmed to you that they would use the clean price of the gilts to value your pension. II confirmed this on two occasions:

·         30 April 2025 – II confirmed this in a secure message to you. They said, “when calculating the 25% tax-free lump sum from your SIPP, the valuation of your holdings, including index-linked gilts, will be based on their clean price, as displayed in your account.”

·         9 May 2025 – II said “the 25 percent tax free lump sum from your SIPP is calculated using the clean price of your holdings including Index-Linked gilts as reflected in your account. We are unable to use the dirty price as our system uses the clean price provided by the London Stock Exchange.”

However, II have now acknowledged that these responses to you were incorrect. They have stated:

“When requesting his 25% lump sum or selling that the “dirty” price would be used. The customer’s complaint is that we show the “clean” price purely on the portfolio page which is an INDICATION of the value based on the price feeds we receive. When the customer comes to sell or take a tax-free allowance the dirty price can be manually calculated which ensures accuracy. The “clean” price is on the portfolio page only.”

So, II have confirmed that if you were to sell your investments or request to take a tax-free lump sum, they will complete manual calculations to ensure your holdings are valued at the dirty price. I think this is fair and this will ensure you don’t suffer the detriment you raised concerns about in your complaint."

michaels

Interesting.  II CS told me only a week ago that if I purchased linkers it would be a problem if I then came to take a TFLS/  They also insist on dealing by phone only and declined to confirm the dealing fees.

af1963

I bought some linkers through ii ( not sheltered in a pension, so the TFC question wasn't an issue).  Although I did need to deal by phone, the fee they charged was their standard online dealing fee because I didn't have the option to deal online.

SnowMan

Lowtrawler said:

FINAL CONCLUSION

I have had a final response from the Ombudsman, extract shown below. In essence, ii provided incorrect advice previously on using the clean price when claiming the PCLS and will perform a calculation based on the dirty price. Panic over and case closed.

"Upon referral to our service, II have reviewed this again and queried this further with their Pensions Team. They have explained that the information given to you on 30 April 2025 was incorrect. Whilst the clean price is shown on the portfolio as this is an indication of its value from the London Stock Exchange, they have clarified that when requesting your 25% lump sum or selling your investments, the dirty price would be used. II have confirmed that to ensure accuracy, the dirty price will be manually calculated when you come to sell or take a tax-free allowance.

Your complaint was raised with us as II had previously confirmed to you that they would use the clean price of the gilts to value your pension. II confirmed this on two occasions:

·         30 April 2025 – II confirmed this in a secure message to you. They said, “when calculating the 25% tax-free lump sum from your SIPP, the valuation of your holdings, including index-linked gilts, will be based on their clean price, as displayed in your account.”

·         9 May 2025 – II said “the 25 percent tax free lump sum from your SIPP is calculated using the clean price of your holdings including Index-Linked gilts as reflected in your account. We are unable to use the dirty price as our system uses the clean price provided by the London Stock Exchange.”

However, II have now acknowledged that these responses to you were incorrect. They have stated:

“When requesting his 25% lump sum or selling that the “dirty” price would be used. The customer’s complaint is that we show the “clean” price purely on the portfolio page which is an INDICATION of the value based on the price feeds we receive. When the customer comes to sell or take a tax-free allowance the dirty price can be manually calculated which ensures accuracy. The “clean” price is on the portfolio page only.”

So, II have confirmed that if you were to sell your investments or request to take a tax-free lump sum, they will complete manual calculations to ensure your holdings are valued at the dirty price. I think this is fair and this will ensure you don’t suffer the detriment you raised concerns about in your complaint."

Great result Lowtrawler. An excellently pursued complaint there. And gives clarity to those following behind you who hold index linked gilts with Interactive Investor.
Interactive Investor don't come out of this well. You can perhaps forgive them initially giving you wrong information but to double down on that nonsense and force you to take this to the FOS is very poor indeed.
It irritated me a bit where Interactive Investor said 
The customer’s complaint is that we show the “clean” price purely on the portfolio page which is an INDICATION of the value based on the price feeds we receive
No, your complaint as clearly indicated by their two replies was that they were going to use the clean price to calculate the 25% cash had you not insisted otherwise. The ongoing portfolio valuation using the clean price is not great but most investors with some understanding of index linked gilts can live with that, but using the clean price for purposes of the 25% causes real losses to investors.
You can imagine Interactive Investor saying (Scooby-doo style) 'We wanted to avoid doing manual calculations. And we would have gotten away with it, if it weren't for that meddling Lowtrawler' 
I wonder how many others have already or would have taken their 25% cash without cashing in their index linked gilts and have not had their tax free cash correctly calculated by Interactive Investor. Interactive Investor have confirmed they will now calculate it correctly for you, but that's because they've been forced into it. But the Interactive Investor wording suggests they haven't been manually calculating the index linked gilt value for purposes of the 25% correctly for others, and wouldn't have done so going forward until someone like you forced them to address this. Only they know (assuming somebody else already affected doesn't come forward) if they have and would have calculated it wrongly for others and are trying to sweep it under the carpet.     

mdonaldo

Well done Lowtrawler and thank you for the update. I'm very glad you pursued this. I'm not with ii but it's absolutely ludicrous that they behaved this way. As Snowman says, they were prepared to inflict real losses on you because they were either ignorant or didn't care. Not ideal qualities in a pension provider.