Is HMRC channelling the magic of Mr Benn?

Those of a certain vintage will remember the animated children’s TV programme, “Mr Benn”, where each episode featured the line, “and then – as if by magic – the shopkeeper appeared”. A similar sentiment could be applied to the new Government Actuary’s Department (GAD) tables for capped drawdown that suddenly appeared on 18 January, from HM Revenue& Customs (HMRC).For those in capped drawdown, the maximum income that someone can receive in a ‘drawdown year’ is calculated by reference to the age of the individual, the value of their pension fund, and a rounded 15-year gilt yield, as at the date of the calculation.The GAD tables provide a monetary amount, (for example, £53), based on the age of the saver and the rounded gilt yield, and the calculation produces a ‘basis amount’, (which is meant to replicate a lifetime annuity rate), which is then multiplied by 1.5, in order to determine the maximum gross income figure.Before 18 January, the lowest gilt yield figure on HMRC’s GAD tables was 2%.However, the new tables reflect the recent fall in gilt yields, as the minimum 2% level has now been reduced to 0% - with no prior warning.Although the gilt yield figure, for capped drawdown purposes, has been held at 2% for the past year, the true 15-year gilt rate has been notably lower than that, (particularly in the immediate aftermath of the ‘Brexit’ vote).The new GAD tables mean that any reduction in the gilt yield below 2% could potentially reduce the amount of income that those in capped drawdown can take.And given that these revised tables appeared ‘as if by magic’ with no public fanfare, (rekindling memories of the sudden change in the ‘QROPS list’ to a ‘ROPS list’ in 2015), capped drawdowners could really be on a downer, if their maximum income is reduced, because a gilt yield figure below 2% has to be used in their calculation.And then - to add insult to injury - when the new tables appeared via a GOV.UK website alert, HMRC omitted to mention the one crucial piece of information that every pensions practitioner viewing the alert would have been searching for in vain; namely, when do these tables take effect from?HMRC’s switchboard must have lit up like a Christmas tree, as every caller asked them the same question.The following day - via Aries and AMPS, rather than directly from HMRC - the answer was provided, by means of an advance release of a section of their forthcoming Pension Schemes Newsletter 84 (my emphasis in bold text);"We published new GAD pension drawdown tables on GOV. UK on 18 January 2017. As in the past few months gilt yields have been below 2%, we have extended the 2011 tables to cover gilt yields in the range of 0% to 2%. You should use these tables for all calculations from 6 April 2017.With the publication of the new tables, the minimum level of 2% referred to in Pension Schemes Newsletter 51 no longer applies. Where the UK gilt level is between 0% and 2% the new tables should be used. Should the gilt level fall below 0% then the scheme administrator should calculate the basis amount using the gilt yield figure of 0%."Pension Schemes Newsletter 84 was finally released on 2 February and, in yet another twist to this saga, includes the sentence, “please note that the extended tables apply from 1 July 2017 rather than 6 April 2017...to give you more time to update your systems”.Thankfully, therefore, pension scheme administrators have time to build the new GAD tables into their drawdown calculation process, whilst providers and advisers have the opportunity to inform their clients of the forthcoming change, in order to help minimise any unwelcome surprises when the outcome of a capped drawdown review calculation is known.A shopkeeper appearing from nowhere is one thing; having less money on which to buy things in their shop is quite another!James Jones-Tinsley is the Self-Invested Pensions Technical Specialist for Barnett Waddingham LLP

Is HMRC channelling the magic of Mr Benn?

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