A J Bell has proposed a radical overhaul of the capped drawdown pensions regime due to concern about the impact low gilt yields are having on peoples’ maximum income.
The provider has persistently raised concerns about the way maximum income for capped drawdown is calculated. Currently, people are allowed to take 100 per cent of the equivalent GAD annuity rate.
This method is largely based on 15 year gilt yields, which have fallen substantially in recent years. Currently, 15 year gilt yields stand at 2.25 per cent.
A J Bell chief executive Andy Bell (pictured) says the Government should introduce a new regime based on the size of an individual’s fund and their age.
Under Bell’s proposals, maximum drawdown income for someone with a pension worth less than £200,000 would increase as they got older. So, someone who was aged 55-59 would be able to take up to 5 per cent of their fund each year, while someone aged 60-69 would be able to take 6 per cent.
The drawdown cap would continue to increase up to 9 per cent for someone who is aged 90+.
Anyone with a pension pot worth more than £200,000 would be able to draw an annual income of 10 per cent of the excess from their fund in addition to their ‘basic’ drawdown allowance.
They would move to their basic drawdown rules once the value of their pot fell below £200,000.
Bell says policymakers should consider scrapping flexible drawdown altogether as part of his proposed reforms.
He says: “This blueprint is based on the simple premise that there is an increased risk of individuals falling back on state benefits if they hold pensions valued below a certain figure.
“These rules could operate in tandem with flexible drawdown, although there would be merit in scrapping the flexible drawdown rules entirely given that uptake has been so low.
“Politically, this would lead to enhanced tax revenues and increased spending. Pension savers want to draw more taxable income than they can at the moment and it normally only makes sense to draw down on pension savings if they are to be spent.”