Pension drawdown annual limits – basis for calculations to be reviewed. Could they rise again?

20th March 2013

Could the income drawdown limits rise again? The pension industry has been lobbying for the Government to change the terms used to calculate the income drawdown  limits i.e. the amount you can take from your pension pot each year.

The Treasury has already conceded a significant change late last year, allowing drawdown investors to take around a fifth more from their pension pot by increasing the amount those in capped drawdown can draw down to 120 per cent of the Government Actuary’s Department’s limit.

The limit is calculated using the 15 gilt rate as a basis but the pension industry would prefer other rates to be taking into consideration such as gilts of longer durations or perhaps corporate bonds.

The calculations are quite complicated but the upshot for drawdown investors is that they might be able to withdraw significantly more from their pension pots.

The Budget report says: “The Government has commissioned the Government Actuary’s Department to review the pension drawdown table and the underlying assumptions used to provide drawdown rates to make sure they continue to reflect the annuity market.”

The Government is also considering whether to change the rules governing pensions to allow schemes to invest in unused space in commercial properties which could then be converted for residential use. The move would be the first time pension schemes were allowed to invest in residential property though pensions have been able to invest in commercial property arrangements.

The previous Labour Government came close to allowing investment in residential property before changing its mind.

15 thoughts on “Pension drawdown annual limits – basis for calculations to be reviewed. Could they rise again?”

  1. forbin says:

    Forward Guidance mark three?

    take one goat , Shaun , and ………


    1. Anonymous says:

      Hi Forbin

      Behind the facade which is Forward Guidance the Bank of England must be concerned that its “spare capacity” either has gone or is going fast. The relief for them must be the strength of the pound (US $1.68 and over Euro 1.21) which is currently taking care of business on the inflation front.

      Meanwhile on the popcorn futures front a good day as it falls below US $5 and the pound rises…

  2. dutch says:

    Balanced piece Shaun.
    It’s nice to see someone mention ‘per capita’ for a chnage.

    Call me cynical but we’re running a 7% fiscal deficit,blowing/blown £375bn on QE,however much on FLS/HTB1/HTB2 and we’re achieving 2% growth.

    Per capita GDP growth is probably negative over the last few years,but to calcualte that properly,the govt would need to know how many people are actually here and planning to retire on their NI contributions.

    1. Jim M. says:

      “Call me cynical but we’re running a 7% fiscal deficit,blowing/blown
      £375bn on QE,however much on FLS/HTB1/HTB2 and we’re achieving 2%

      And that’s after the figures have been massaged in a manner that would incur an almighty extra charge in any self-respecting clip joint!

      How can we expect people to look past the headline when there are so many distractions?

      I expect some clever devil already has the popcorn futures tied up and has retired to the Turks & Caicos or some such..


      1. Anonymous says:

        Hi Jim M

        Unless he has been spoofing us I don;t think Forbin is in the Turks and Caicos. Meanwhile this picture I spotted earlier on twitter sums up at least some of the current situation.

  3. forbin says:

    Hello Shaun,

    I think it was the Great Gordo who linked taxes and the like to RPI and benefits to CPI …….

    seems the media didn’t notice and still don’t

    seems a few contributers are still stuck in Thatchers 80’s regards benefits, don’t you think she did anything or those after her to tighten up fraud and make work pay ?

    maybe its because theres still over 2 million jobs ( by the restricted measurement) and 1/2 million vacancies – its called maths ( you know on the 3 R’s 😉 )

    dutch beat me to the QE debarcle , still no answer from HMG on that .

    strict economics , because Shaun doesn’t do politics, well we still have emergency interest rates and we still have baked into the cake saving rate drops coming through ……

    and I still posit that the BoE will only raise rates if wages take off, its all they ever targeted ( thats wages for you and me , not the top 0.1% )

    The West is still emulating Roman times with the top not wanting to pay for Civilization and debauched currencies .

    ah interesting times !


    1. Noo 2 Economics says:

      “I think it was the Great Gordo who linked taxes and the like to RPI and benefits to CPI”.

      I don’t do politics as I think the lot are a waste of space but it was Osborne who linked benefits to CPI in April 2011. I don’t know about Brown’s linking taxes to RPI but I do know he implemented any number of extra taxes like the fuel duty escalator (which was linked to RPI as were benefits at the time) and stamp duty on dividends within an ISA to name but 2.

  4. Eric says:

    Hi Shaun,
    Great piece again, thanks.
    I wonder if the productivity puzzle has something to do with the change in employment patterns to more part-time/casual employment. Efficiency (Output/Hours worked) might be maintained or even improved; whereas as Productivity (Output/Hours available) would suffer if workers, available for full-time work, moved to part-time work. In other words, total Productivity suffers because of poor Utilisation. And poor Utilisation (Hours worked/Hours Available) directly affects the individual worker because they only get paid for hours worked!

    On the other hand maybe these things are very hard to measure and the results just can’t be trusted. Who knows!

    1. Anonymous says:

      Hi Eric

      I do not doubt that the type of factors you mention in your main paragraph are at play here. The rise of self-employment has all sorts of implications across the numbers are for example the average earnings figures quoted above exclude them. As for productivity figures well…

      “ONS has developed new labour statistics which provide a full breakdown between employees and the self-employed and include a number of methodological improvements. Revised estimates of labour productivity using these new statistics will be published shortly.”

      It is good that improvements are planned but it makes me wonder about the existing data.

  5. Anonymous says:

    Great column, Shaun.

    The August 2013 Inflation Report introduced what became the first phase of forward guidance with the February Report the way Rocky became Rocky One. It stated that “The MPC’s best collective view is that the unemployment rate is as likely to reach the 7% threshold before the forecast horizon [2016Q3] as after it.” Now the headline unemployment rate has dropped below that threshold for the month of February, while the Bank of England forecasters believed there was about a 50-50 chance it wouldn’t even attain that threshold for another two years or more. It seems almost unbelievable that a central bank could be so wrong in forecasting a variable to which it attached so much importance.

    Forward Guidance One said that there would be an inflation knockout if “in the MPC’s view, it is more likely than not, that CPI inflation 18 to 24 months ahead will be 0.5 percentage points or more above the 2% target”. This innovation, which essentially replaces a 2% target rate with a 2.5% target rate, seems to have survived to Forward Guidance Two. Surely it should be jetissoned with the unemployment rate knockout and all the rest of the forward guidance regime. Andrew Baldwin

  6. dutch says:

    It is a mix of both.

    Here’s a pointer on how it works.Normally benefit recipients can get help via council or professional body but some are open to those who declare themselves in need.It wouldn’t be hard for someone who’s unscrupulous to claim poverty.Also,those deep in debt may not receive benefits but would qualify
    ‘To qualify for help, families and individuals have to be referred to The
    Food Bank by a professional care organisation, such as Social
    Services, MK Council

    Tenant Support Team, Probation Service, Citizens Advice Bureau, Age UK
    etc. All Churches, Schools, Sure Start Centres and Doctors Surgeries
    also have the ability to refer.’

  7. anteos says:

    great article Shaun.

    Agreed pavlaki, I don’t wish to be cynical but I’m not sure if foodbanks statistics are a good indicator of the general level of poverty.

    Foodbanks have always been around, but its only recently been seized upon by the media. iirc there was a program on the been where one of the recepients got into her people carrier to head off to the foodbank.

    There is a massive waste of food in the uk, so much so that they’re trying to legislate against ‘bogof’ deals. Which would have the peverse effect of making food more expensive.

  8. Anonymous says:

    Hi Pavlaki

    I take your point that the detail should be analysed as Dutch has done below but prima facie such a rise in the numbers is concerning.

  9. Anonymous says:

    Hi Anteos and thank you

    I agree with the effort to stop food wastage. But I was troubled by the concept of well-off and often wealthy House of Lords members (Members of the House of Lords who are not paid a salary may claim a daily allowance of £300) restricting a scheme which the poor must be grateful for! Such “bogof” deals may be the only way some of the poor get the opportunity to get what we would regard as good healthy food.

    I do hope the eateries at the House of Parliament do not suffer from excessive food wastage..

  10. Anonymous says:

    Can i yet again point out that food banks can only ever be visited three times per year and to be able to visit one you have to be given a voucher by a gateway organisation such as citizens advice or social services.

    When you get the voucher there is a maximum of three days worth of food given…
    Many of the people attending are in desperate need as they have been sanctioned or there is a delay in their benefit claims (at present all claims are taking around six weeks)
    It is not the picnic many like to believe it is…

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