5th December 2012
Investors in income drawdown can now dip into more of their pension pot due changes announced by the Chancellor of the Exchequer George Osborne.
The amount these retirees are allowed to take each year will be increased by a fifth under plans announced in the Chancellor’s Autumn Statement.
The move will apply to those who have decided not to buy an annuity but keep their retirement fund invested, a strategy typically adopted by many better off pension savers with pension pots at the very least above £100,000 or more.
However to ensure that these pensioners do not exhaust their pension pots, the Government applies a restriction to most capped drawdown plans known as the GAD limit.
The name comes from the fact that the Government Actuary’s Department calculates the figure partly based on the yield from 15 year gilts.
Under reforms to the system which came into to force in April 2011, in any one year, a drawdown investor could take out a maximum of 100 per cent of the GAD limit which represented a very significant cut in many pensioners’ incomes. The lower limit coincided with depressed yields for gilts representing a double whammy for many investors.
That limit will now rise to 120 per cent.
The move will be welcomed by many pensioners. They may not face abject poverty, but they have seen significant and some might say precipitous falls in their income. Last month, for example, thisismoney.co.uk reported on pensioners grappling with big cuts to their incomes and calling on the Chancellor to act. In one instance a couple had to put their house up for sale to help manage the severe cut to their income.
The remaining question is whether, with such low rates for gilts and stubbornly high inflation, it will be enough. Speaking to the House of Commons, the Chancellor said: "I have listened to concerns from pensioners about drawdown limits. I am today announcing that the Government will raise the capped drawdown limit from 100 per cent to 120 per cent, giving pensioners with these arrangements the option of increasing their incomes."