Pensions - Articles - Drawdown rules contributing to pensions cut of nearly a 1/3


 SIPP provider A J Bell is pressing the government to act as new rules on income drawdown combined with near record low gilt yields have led to a 32% cut in retirement income for many pensioners. The maximum income available from drawdown is calculated using tables prepared by the Government Actuary's Department (GAD). In recent years the maximum has been based on 120% of a comparable annuity - which in turn is based on gilt rates. But in April last year the upper limit changed to 100% and since then gilt rates have fallen drastically.

 A year ago they were 4.00%. On Friday they fell to 2.25%. For those approaching retirement this year - or whose drawdown terms are up for three yearly revision - the combination of falling gilt yields and the new lower percentage limit will mean a reduction of several thousand pounds in their annual pension income. A J Bell says a 65 year old male with a pension pot of £250,000 going into drawdown in February 2012 will have a maximum drawdown of £13,750 - in February 2011 the figure would have been £20,400 - a reduction of 32%.

 A J Bell Marketing Director Billy Mackay said: "The government wants to protect those who opt for drawdown instead of annuities from exhausting their pension pots but we've seen little evidence to suggest this is happening.

 "The fall in gilt rates has had a drastic effect on drawdown rates and threatens to pose real and unnecessary hardship to many people who may feel justifiably agrieved that they can't access the money they worked so hard to save. The Government has said it won't allow GAD rates to drop below 2% but you have to question whether this is enough. It needs to fundamentally question the logic of linking drawdown income rates to gilts and instead look at fixed income factors linked to the clients age. Whilst it consults on a more appropriate measure it should also consider restoring the 120% factor in the maximum income calculation."

Back to Index


Similar News to this Story

94 percent view State Pension as an entitlement not benefit
Majority of adults aged 66+ say that Triple Lock is affordable and fair to older generations. Around one in seven rely on the State Pension to provide
Fair play off the pitch
Male players in the English Premier League earn an average of more than £3 million per year, while their female counterparts average around £47,000. T
Why Bitcoin matters to Pension Schemes
Back in November 2024, Cartwright Pension Trusts announced its role in facilitating the first-ever UK DB pension trust investment in Bitcoin. With the

Site Search

Exact   Any  

Latest Actuarial Jobs

Actuarial Login

Email
Password
 Jobseeker    Client
Reminder Logon

APA Sponsors

Actuarial Jobs & News Feeds

Jobs RSS News RSS

WikiActuary

Be the first to contribute to our definitive actuarial reference forum. Built by actuaries for actuaries.