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

Lowtrawler

SnowMan said:

You would have to ask other platforms how they would value the index linked gilts. Although other platforms (for example Hargreaves Lansdown, Halifax Sharedealing (and iweb) typically show the gilts in your account undervalued at the clean price, they may still be prepared to value them in terms of the pension value to which the 25% is applied allowing for indexation also.

Do interactive investor allow you to opt for partial drawdown and if so do they let you choose which investments to move into drawdown (or is it done pro-rata?). If they do let you choose then you could put everything into drawdown apart from the index-linked gilts, albeit that still leaves you with some issues. 

II are pro-rata and so good idea but it doesn't help. I have gone back to them and asked them to explain how valuing at the clean price fits in with the FCA consumer duty which requires regulated firms to deliver good financial outcomes for retail customers and explaining the detriment is not insignificant.

SnowMan

Lowtrawler said:

SnowMan said:

You would have to ask other platforms how they would value the index linked gilts. Although other platforms (for example Hargreaves Lansdown, Halifax Sharedealing (and iweb) typically show the gilts in your account undervalued at the clean price, they may still be prepared to value them in terms of the pension value to which the 25% is applied allowing for indexation also.

Do interactive investor allow you to opt for partial drawdown and if so do they let you choose which investments to move into drawdown (or is it done pro-rata?). If they do let you choose then you could put everything into drawdown apart from the index-linked gilts, albeit that still leaves you with some issues. 

II are pro-rata and so good idea but it doesn't help. I have gone back to them and asked them to explain how valuing at the clean price fits in with the FCA consumer duty which requires regulated firms to deliver good financial outcomes for retail customers and explaining the detriment is not insignificant.

Good move. Their literature probably says something like you can take 25% of your pension pot as tax free cash. It probably doesn't say "you can take 25% of your pension pot as cash, except where our systems are so rubbish that we value your pension pot at less than market value, when it might be £10,000 or more less than this". So arguably they aren't doing what they say they will do in their literature.

I think the legislation says that you can take a lump sum of 25% of the market value of assets that are put into drawdown. Confirmation of that might just be here in the HMRC pensions manual (search and see the reference to market value there where it talks about one third of the market value of the assets being designated which it explains translates as 25% when you factor in the lump sum itself). If it is market value then clearly using the clean price is not consistent with a market value valuation.

TheGreenFrog

I would complain - and it sounds like you have complained (i.e. your request for an explanation should be treated as a complaint).

ii are also guilty of issuing incorrect contract notes for ILGs - they add the inflation indexing of the capital to the accrued interest figure.  At least they acknowledge that error and volunteer to send a private message with the correct figures (and sometimes the message does contain the correct figures, and sometimes it does not!).

Lowtrawler

TheGreenFrog said:

I would complain - and it sounds like you have complained (i.e. your request for an explanation should be treated as a complaint).

ii are also guilty of issuing incorrect contract notes for ILGs - they add the inflation indexing of the capital to the accrued interest figure.  At least they acknowledge that error and volunteer to send a private message with the correct figures (and sometimes the message does contain the correct figures, and sometimes it does not!).

Thanks for the link. It comes under PTM063240 and it does refer to market value:

"The PCLS is...."

"The applicable amount where uncrystallised funds are being designated to provide drawdown pension under a money purchase arrangement, that is not a collective money purchase arrangement, is:

one-third of the total of:

• the sums designated as being available for the payment of drawdown pension on that occasion under that arrangement
• the market value of the assets similarly being designated (taking into account any liabilities associated with that asset, such as a mortgage) under that arrangement"

TheGreenFrog

Lowtrawler said:

TheGreenFrog said:

I would complain - and it sounds like you have complained (i.e. your request for an explanation should be treated as a complaint).

ii are also guilty of issuing incorrect contract notes for ILGs - they add the inflation indexing of the capital to the accrued interest figure.  At least they acknowledge that error and volunteer to send a private message with the correct figures (and sometimes the message does contain the correct figures, and sometimes it does not!).

Thanks for the link. It comes under PTM063240 and it does refer to market value:

"The PCLS is...."

"The applicable amount where uncrystallised funds are being designated to provide drawdown pension under a money purchase arrangement, that is not a collective money purchase arrangement, is:

one-third of the total of:

• the sums designated as being available for the payment of drawdown pension on that occasion under that arrangement
• the market value of the assets similarly being designated (taking into account any liabilities associated with that asset, such as a mortgage) under that arrangement"

I think you have @Snowman to thank for that link. 

ii are just taking the lazy way out.  I suppose you will eventually get your full 25% tax free if you are prepared to wait for maturity when you will get paid out the difference between the clean and dirty (which is mostly going to be indexation of the capital) - not much consolation though!.

Lowtrawler

TheGreenFrog said:

Lowtrawler said:

TheGreenFrog said:

I would complain - and it sounds like you have complained (i.e. your request for an explanation should be treated as a complaint).

ii are also guilty of issuing incorrect contract notes for ILGs - they add the inflation indexing of the capital to the accrued interest figure.  At least they acknowledge that error and volunteer to send a private message with the correct figures (and sometimes the message does contain the correct figures, and sometimes it does not!).

Thanks for the link. It comes under PTM063240 and it does refer to market value:

"The PCLS is...."

"The applicable amount where uncrystallised funds are being designated to provide drawdown pension under a money purchase arrangement, that is not a collective money purchase arrangement, is:

one-third of the total of:

• the sums designated as being available for the payment of drawdown pension on that occasion under that arrangement
• the market value of the assets similarly being designated (taking into account any liabilities associated with that asset, such as a mortgage) under that arrangement"

I think you have @Snowman to thank for that link. 

ii are just taking the lazy way out.  I suppose you will eventually get your full 25% tax free if you are prepared to wait for maturity when you will get paid out the difference between the clean and dirty (which is mostly going to be indexation of the capital) - not much consolation though!.

My intention is to go into flexi-access drawdown and take the 25% PCLS immediately to avoid any possible change to the tax treatment in future. Hence, waiting for maturity won't work. 

SnowMan

You've got a super strong case to take this forward to Interactive Investor now. If they don't budge make sure they've registered it as a complaint and ask for a final response so you can take it to the Financial Ombudsman Service which might encourage them to be more reasonable. Let us know how you get on, as it may well happen again to others in a similar position.

Lowtrawler

I have had a response from ii and asked them to raise my concerns as a complaint. I have taken issue with them regarding the clean price as a market value because it appears on their feed from the LSE. They have said:

Within our terms and conditions, we state that we will value the investments in your SIPP Account using a price feed that we reasonably determine from independent service providers or quotations from independent Market Makers or dealers in the investment concerned.

When processing benefit requests, we follow paragraph 2A of schedule 29 of the Finance Act 2004 to ensure we are complying with the prevailing legislation when actioning requests. As part of this legislation, it is stated that the market value of designated assets can be used to determine the applicable amount for the PCLS. As the clean price is the value that is stated on the London Stock exchange, this is the value we would use.

SnowMan

Lowtrawler said:

I have had a response from ii and asked them to raise my concerns as a complaint. I have taken issue with them regarding the clean price as a market value because it appears on their feed from the LSE. They have said:

Within our terms and conditions, we state that we will value the investments in your SIPP Account using a price feed that we reasonably determine from independent service providers or quotations from independent Market Makers or dealers in the investment concerned.

When processing benefit requests, we follow paragraph 2A of schedule 29 of the Finance Act 2004 to ensure we are complying with the prevailing legislation when actioning requests. As part of this legislation, it is stated that the market value of designated assets can be used to determine the applicable amount for the PCLS. As the clean price is the value that is stated on the London Stock exchange, this is the value we would use.

Complete nonsense from Interactive Investor.

Market value is the selling price of an asset or company on the open market, based on what buyers are willing to pay and what sellers are willing to accept. No seller would be willing to sell at the value they have placed on the index linked gilts for drawdown purposes. Neither would Interactive Investor allow you to buy the gilts off them at the price they've placed on them. So it can't represent market value.

TheGreenFrog

Escalate.  Hopefully at some stage someone in ii will realise it would be very unwise for them to let this go to the Ombudsman.