Income drawdown is a particular situation where the deceased has
reached pension age but has chosen not to buy an annuity that will
provide their pension. Instead they decide to ‘draw’ a
certain level of income from their retirement benefits (
IHTM17030) with a view to buying an
annuity at a later date.
The option to defer purchase of an annuity was introduced by
the FA95 at a time when annuity rates were relatively poor. This
allowed the member to defer taking their whole retirement benefits;
they would take a part lump sum and a certain level of income
drawdown (between 35% - 100% of what the fund produced) and then at
some later date (but no later than age 75) when annuity rates had
hopefully improved the member could go back and purchase an annuity
with the balance of the fund.
For IHT purposes the member is effectively taking less than
their full entitlement when they retire so there is a possibility
of a lifetime transfer (
IHTM14000) claim to IHT for a failure
to exercise (
IHTM14810) a right under IHTA84/S3 (3).
Income drawdown is an example of the member making a change
to the benefits they are entitled to and parties should give
details at Boxes 16 to 21 on the form IHT409 (
IHTM10035) if the policy commenced
within 2 years of the death. If you become aware of a deceased with
an income drawdown policy (they are normally prefixed with the
letter MPN) which has not been included in the IHT409 you should
refer the case to the TG in IHT Edinburgh.
In June 1999 the ABI after discussion with IHT issued a
guidance note (
IHTM17102) setting out the basis on
which a claim to IHT might arise. The claims which can arise
are
