Andy Bell, chief executive of investment platform provider AJ Bell, has written to the Financial Secretary for the Treasury David Gauke urging the Government to scrap capped drawdown following the introduction of the new pension flexibilities in April 2015.

Mr Bell highlighted a concern that the complexities of capped drawdown – which impose a maximum annual income limit on individuals, which needs to be monitored and regularly reviewed by pension providers – will result in increased cost and confusion for the 400,000-plus individuals affected by the changes.

Last week the Government released a technical consultation covering the pension rules that will apply from 6 April 2015. Individuals taking pensions benefits from their scheme for the first time will be able to choose from the following main options:

• Flexi-access drawdown. This will allow individuals to take a lump sum from their pension fund tax free with the remainder of the fund available as taxable income, with no upper limit. Individuals taking flexi-access drawdown benefits will see the limit on the amount they can contribute to money purchase schemes (the money purchase annual allowance) drop from £40,000 to £10,000.
• Uncrystallised funds pension lump sums (UFPLS). These will allow individuals to take some or all of their pension as a single lump sum. 25% of this will be tax free, with the remainder taxed as income. Once a UFPLS has been received the money purchase annual allowance will also drop from £40,000 to £10,000.
• Lifetime annuities. Those receiving a lifetime annuity will retain a money purchase annual allowance of £40,000.

The Government has confirmed that individuals who are already in capped drawdown on 5 April 2015 will not automatically move across to flexi-access drawdown. They will be able to stay in capped drawdown provided they do not take out more than their capped drawdown annual income limit. Individuals in capped drawdown will retain a money purchase annual allowance of £40,000 rather than seeing it drop to £10,000.

Mr Bell said "My letter to the Treasury highlights that the Government could have simplified the retirement landscape by scrapping capped drawdown at the same time as introducing flexi-access drawdown. It has chosen to retain capped drawdown solely to protect the right of those already in capped drawdown to contribute more than £10,000 a year to their money purchase pension schemes.

"My issue is that the Government's own figures state that this policy benefits just 2% of those aged 55 and over. Is there a genuine need to retain a complex and potentially costly capped drawdown regime for just this one reason?"

He added: "We have seen evidence from providers that suggests that between 40% and 60% of those in capped drawdown don't take any pension income at all, they simply wanted to be able to take their tax-free cash. I have called on the Treasury to get rid of capped drawdown and ensure that all individuals can benefit from lower costs, even those who don't make use of the new pension flexibilities."