The amount that can be taken from income drawdown is set by the Government’s Actuary’s Department, and the GAD rate is set against standard annuity rates which in turn are influenced mainly by UK government bonds, with low gilt yields equalling low annuity rates.
Scott Mullen from My Pension Expert said:
“To see GAD drop by 5 basis points in one go to its lowest level of 2% signifies a huge drop in what retirees can take from their pensions through income drawdown and fixed term annuities, where investors are limited to the level of income set by the Government Actuarial department.
“The GAD rate which reflects wider annuity rates has fallen from its peak of 3.25% this year to the lowest possible level of 2%. This is however like the sea receding before a tsunami, as in just over four months’ time the GAD limit will be removed which will mean a tidal wave of pension withdrawals.
“While we are still working to the old system it does seem a little odd limiting further what people can take now, when in the near future unlimited access will be granted.”
Ray Chinn, LV= Head of Pensions and Investments said:
“Following the Government’s pension announcement, those approaching retirement now have even more choice and control over how they arrange their retirement income.
"It is essential that retirees consider alternative solutions to standard lifetime annuities such as income drawdown, investment-linked or fixed term annuities to ensure that they structure their income in a way that best suits their individual needs.
"Since the Budget we have seen more demand for drawdown solutions. One of the reasons retirees are using income drawdown is the ability they have to turn the income tap on and off. For those people that continue to work this is extremely useful as it means that they can access their fund, but can drip feed the income so they don't end up in a higher tax bracket. We would also always encourage people to take regulated advice, in order to get the most from their retirement income.
“Figures show that, from January, the amount a 65 year old income drawdown client can take from their fund will be £53 per £1,000. This means that a 65 year old client with a £100k fund will be able to take £7,950 from their pension fund.”
