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Government rejects calls to increase drawdown income limits

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The Government has rejected calls to increase the pension income available through drawdown by restoring the 120 per cent GAD limit.

In a letter responding to AJ Bell chief executive Andy Bell, Treasury financial secretary Mark Hoban also rejects calls for a  review of the way drawdown income is calculated using gilt yields.

Hoban says lowering the GAD limit to 100 per cent was an essential part of the Government’s recent reforms, introduced in April, which scrapped the effective obligation to annuitise at 75.

Bell’s original letter urged Hoban to “immediately re-instate” the 120 per cent calculation as gilt yields, which are also used to calculate maximum drawdown income, continue to tumble.

He is also calling for a policy review to determine whether “slavishly following gilt yields and actuarial principles” remains the most appropriate way to set drawdown limits.

In July, Legal & General pensions strategy director Adrian Boulding criticised the Treasury’s decision to cut the maximum pension income that can be taken under capped drawdown.

However, in August Partnership chief executive Steve Groves warned policymakers that under the current rules there is a significant risk that large numbers of people in capped drawdown will exhaust their pension fund early.

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Readers' comments (4)

  • Well, should we be surprised?

    The same government who brought in no requirement to buy an annuity alongwith a 55% tax charge on death benefit lump sums in USP/Drawdown.

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  • With a 15 year historical low for Gilt Index Yields, anyone who is about to have their Income Drawdown pension limits reviewed this month will need to seriously consider interim reviews at the next anniversary to have their limits amended. With a triple whammy of Gilt Index Yields of 2.75% for October 2011 when taken together with the 2011 GAD Tables and the reduction in the percentage of GAD a client can take will result in a serious drop in the amounts they can take from their drawdown pot.

    This sensible suggestion from Andy Bell has been simply been dismissed out of hand without a thought for those members who will be affected.

    One of our SIPP members, who is to be reviewed in October is on target to suffer a 44% reduction in the maximum income level that he could take as a result of these three measures.

    Clients need to be able to plan their income with confidence. Investment risk in income drawdown is one thing, this is another.

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  • And all this before the GAD tables will be hit further (for men at least) next December when they will presumably change to unisex rates to meet the EU's gender requirements

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  • keith hanna | 28 Sep 2011 12:57 pm

    Well, should we be surprised?


    To be fair they also reduced the death tax charge for over 75s from a maximum 82% to 55%.

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