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AS 2012: Drawdown income limit to return to 120% – but no date set

George Osborne 480

Chancellor George Osborne has announced that the drawdown income limit is to be restored to 120 per cent of GAD.

Capped drawdown was introduced as part of the Government’s reforms to abolish compulsory annuitisation at age 75.

Following the changes, which came into force in April last year, the maximum amount a person in capped drawdown can take as income was reduced from 120 per cent of the equivalent GAD annuity rate to 100 per cent. This, coupled with plummeting gilt yields, has dramatically reduced the income that savers are able to take each year.

Giving his Autumn Statement speech today, Osborne 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.”

Pension provider A J Bell says it has been told by HMRC representatives that the change will require legislation. Draft legislation will be produced before the next Budget, although the actual date of implementation will depend on the outcome of discussions between Government officials and the industry.

Figures from A J Bell suggest the move back to 120 per cent will mean a 65 year old with a £250,000 pension pot could see their maximum drawdown income increase from £13,250 to £15,900.

The Association of British Insurers had proposed a temporary solution which would involve changing the way the GAD maximum is calculated by using a mixture of long-term corporate bond yields and long-term gilt yields, rather than the 15-year gilt yield currently used.

Others in the industry have called for a more radical review of the current drawdown regime.

The chancellor has also announced plans to cut the annual allowance for tax-incentivised pension saving from £50,000 to £40,000 and the lifetime allowance from £1.5m to £1.25m. The new limits will come into effect in 2014/15.


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There are 15 comments at the moment, we would love to hear your opinion too.

  1. …. back to where we were!

    This will, however, potentially create a need for advice as there will be a fair few people locked into a 3 year income limit who want to take advantage of this rise however they may well find that their providers can’t facilitate member nominated reviews.

  2. It sounds like this change is effective immediately, but despite there being detail on the HMRC site re lifetime allowance & annual allowance changes, there is zip on this change. Can someone please confirm?

  3. I do think this is generally good news for those who saw incomes falling behind those available from conventional annuity. However, it still does not address the fact that the investment return required to support 120% GAD still needs to be good enough to offset erosion of the capital in the fund. Especially if a nasty income drop is to be avoided at the next review.

    I do agree that this will prompt a requirement for advice for those both in drawdown and for those that will now find drawdown attractive again.

  4. Sorry but if it is immediate, I’m not sure the unintended consequences have been thought through here. If I moved to the 100% GAD on 6th Dec last year and my limit from today is now 120% GAD, I’ve only got tomorrow to claim my extra 20% because I have to take it in my pension year. No detail is not helping at the moment.

  5. Why can’t the government see that the reason why peoples pension income is having such a sharp reduction on review is that they were taking far too much income in the first place. I totally agree with James Dean that the growth required to support 120% GAD income being taken year after year is far in excess of what we have seen in recent years and also needs to be continuous, which we all know doesn’t happen in the real world. For god sake, the FSA have just reduced the growth projections on drawdown pension quotes as they are unrealistic (too high).

    I also agree that advice is needed now more than ever and people should be thinking about maintaining an income that will survive longer than they do rather than stripping everything they can from their fund to eventually end up in a far worse position, when it is too late to rectify.

  6. Providers will be hoping its not immediate as changing all the systems, quotes and outputs is a nightmare.Surely it’ll be an April change???

  7. Beware of anonymous posters telling us everyone should be buying an annuity. Could this be a member of the annuity lobby? One of the reasons we advisers look at ( inter alia) what other sources of income are extant at commencement is to avoid the client running out of income.

    This will be good news for those in drawdown, if overdue. Agree most likely date would be April but cannot see why this should not apply asap. If providers have to amend systems then so be it; they will make it available as soon as they can.

  8. For those asking if it is immediate, might I suggest you re-read the article or even look at the title.

    “AS 2012: Drawdown income limit to return to 120% – but no date set”

    “Pension provider A J Bell says it has been told by HMRC representatives that the change will require legislation. Draft legislation will be produced before the next Budget, although the actual date of implementation will depend on the outcome of discussions between Government officials and the industry.”

  9. I have to say I can’t see this being good news, as the the reason GAD was reduced was because people were taking too much money from their funds in the first place and there wasn’t the growth to cover the withdrawal.

    Drawdown is still the way forward, if managed in the right way however.

    Don’t see any annuity promotion on here but I agree that annuities at today’s current rates are a poor option for the client.

  10. People should be able to decide for themselves how much money to withdraw from their savings, not a government! Why should governments have such power over people’s savings schemes? Better still, let people have their money back!

  11. Well this move will likely ensure that another FSA compliance review will be instigated some time down the lIne. A clear sign for advisers to ensure that strong soft facts regarding previous investment experience, Attitude to risk & the clients understanding of the risks of taking max income are clearly documented at the point of sale & within the SuitabIlity Letter. Good luck !

  12. I will take the maximum regardless , to reduce my pot as much as possible. If I do this and invest the extra 20% independantly then the smaller pot will attract a smaller tax take when I go ( presently 55% against 20% if I take it now ! ) It really is a no brainer but no one one seems to consider this

  13. Wonderful example of planned govmt. Change in April retract in November but let’s see when!!!
    I just can’t believe what they are doing…..
    It really is amazing – truly astonishing.
    One day one thing then change the next – and with pensions that are supposed to be long term.
    Then they launch a scheme for saving into a pension for the long term – I don’t se how anyone can trust them.

  14. do we have an up date as to when we can commence draw down using the 120% GAD rate or is it still unclear

  15. Income drawdown permit you to draw an income directly from your pension, although it is leaving the remainder invested. It is help the customers contracts and manage their pension affairs in a way that best suit them. Thanks for this excellent post. It will really help a lot of people.
    Income Drawdown

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