A. Income drawdown: revised GAD Tables

Today HMRC published new tables to determine the annual amount when calculating the maximum income withdrawal from Unsecured Pension (USP) funds.

Money purchase schemes are permitted by FA 2004 Sch 28 to allow members to take an annual income from their pension fund of between 0% and 120% of the 'annual amount' of a comparable lifetime annuity. This 'annual amount' is determined by tables created by The Government Actuary's Department (GAD), the governing legislation being Sch 28 para 14 and the Relevant Annuities Regs (SI 2006/129). There are separate tables for men, women and children (ie individuals up to age 23).

The tables work through a correlation of the age and gender of the individual with the relevant gilt yields. The adult tables are based on fifteen year gilt yields and the children's table on five year gilt yields due to the shorter expected nature of dependants' pensions for children. All three tables cover gilt yields from 3% to 8%.

The adult rate for February 2009 is 3.75%, having fallen from 4.75% in January 2008. However, the five year gilt yield fell below 3% last month and so an extended Children's table has been produced covering gilt yields down to 2%. The adult tables have also been extended to give consistency with the new Children's table. The new tables, together with instructions on how to use them, are available on the HMRC website.

Aries will shortly be incorporating the revised basis in the Aries SIPP Illustration System.

B. SMPI: BAS launches new version of TM1

The Board for Actuarial Standards (BAS) has issued version 1.3 of the document known as TM1 (Technical Memorandum 1), the prescribed specification for Statutory Money Purchase Illustrations*. A 'track changes' version comparing v1.3 with the previous version, is also available.

*Since 6 April 2003 certain money purchase pension arrangements have been required to provide members with Statutory Money Purchase Illustrations (SMPIs). Legislation requires that SMPIs are produced in accordance with guidance prepared by a prescribed body approved by the Secretary of State for Work and Pensions and by the Department for Social Development in Northern Ireland. The BAS was appointed as the prescribed body with effect from 6 April 2007.

This follows a three-week consultation Amending TM1 for revised contracting out provisions in December 2008. The BAS has issued an analysis of the responses which explains the reasons for their decisions.

The consultation paper set out the BAS's proposals for amending TM1 to take account of two changes affecting pension arrangements which are contracted out on a money purchase basis. These were the proposed abolition of money purchase contracting out (from an "abolition date" expected but yet to be confirmed to be in 2012) and changes to the earnings used to calculate contracting out rebates of National Insurance Contributions.

Proposal: to amend TM1 so that SMPI projections would be based on rebates payable up to the abolition date, or up to 2012 if the abolition date has not yet been set by the Secretary of State.
Decision: to amend TM1 so that rebates should be assumed to cease no later than the abolition date (ie 6 April 2012 or such other date as notified by the Secretary of State). Providers will thus have the option of preparing SMPIs on the assumption that no further rebates accrue after the date of the SMPI. This option may allow easier implementation of the changes by some providers.

Proposal: to amend TM1 so that in projecting future rebates it should be assumed that the Upper Accrual Point (UAP) (replacing the Upper Earnings Level in rebate calculations from 6 April 2009) would remain fixed at £770 per week.
Decision: proposal adopted.

Proposal: that 2009/10 SMPIs should include an explanation of the changes in projections and the reason for them.
Decision: providers should provide recipients with a clear explanation of the treatment of rebates, including the date at which they are assumed to cease, and of the change in approach from the previous statement.

Proposal: to remove the examples of the calculation of rebates in Appendix B of TM1, as they were out of date and providers should be familiar with the calculations required for SMPIs.
Decision: proposal adopted.

The changes will be effective for all SMPIs issued on or after 1 September 2009, in order to give providers sufficient time to implement changes to their systems and procedures. However the BAS believes that most providers should be able to implement changes before then, and encourages early adoption of the new version of TM1 for SMPIs with effective dates on or after 6 April 2009.

As one of the very few independent providers of a SMPI System, Aries intends to ensure the Aries SMPI System is fully compliant by April. At the moment, however, there are a couple of unresolved issues.

The first problem is that the Age-related Rebate (ARR) figures currently available for the years 2010/2011 and 2011/2012 are still based on a three tier accrual (40, 10, 20). We believe that the calculation of APP rebate for these years should be changed to reflect the change to two tiers (40, 10) from April 2010, otherwise the future rebate calculation will be out of line with S2P accrual. This will require an amendment to The Social Security (Reduced Rates of Class 1 Contributions, Rebates and Minimum Contributions) Order 2006 (SI 2006/1009), but nothing has materialised yet. The GAD has confirmed to Aries that DWP do indeed plan to lay an amending Order to decree that from 6.4.10 the figures for Band 3 are the same as for Band 2 (in effect). We are pressing the DWP to publish a draft amending Order.