Legal & General pensions strategy director Adrian Boulding is calling on the Government to reverse its decision to slash the maximum income a person can draw down from their pension in retirement.
The Government Actuary’s Department produces tables of annuity rates on behalf of HM Revenue and Customs which are used to calculate the maximum pension income that can be taken under capped drawdown.
In April, the Treasury reduced the maximum amount a person in capped drawdown can take from 120 per cent of GAD to 100 per cent of GAD.
Boulding says: “I am not sure the Treasury really knew what it was doing when it cut the maximum GAD rate to 100 per cent. It was an overly conservative and ultimately self-defeating decision because more funds will remain in tax-free savings vehicles so the tax move will fall.
“The Government should reinstate the 120 per cent GAD limit, because people tend to spend more money in the early years of retirement when they are more active and then reduce their spending later on.”
Hargreaves Lansdown head of advice Danny Cox says: “There are various stages of retirement and in the later, less active stages less income is required unless money is needed to meet care costs.
“Investors would certainly like the additional flexibility of a higher GAD maximum but it increases risk. The problem with 120 per cent GAD is it is not sustainable in the long term.”