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AS2013: Govt rejects income drawdown changes after Treasury review

The Government  has rejected calls to change income drawdown rules after a Treasury review found they are a “reasonable match” to annuity rates.

In its Autumn Statement today, the Treasury said the way income withdrawal rates are formulated will not be changed after it ordered a review in the March Budget.

The Association of British Insurers has called for the Government Actuary Department maximum used to set drawdown rates to be calculated using a mixture of long-term corporate bond yields and long-term gilt yields. The GAD maximum is currently based on 15-year gilt yields.

Insurers say this would better reflect the price of a single-life annuity on the open market and increase the maximum income available.

The Government increased the maximum amount a person in capped drawdown can take as income from 100 per cent to 120 per cent of the equivalent GAD annuity rate. It had initially reduced it from 120 per cent to 100 per cent in April 2011.

But the Treasury said: “At Budget 2013, the Government commissioned its Actuary’s Department to review income drawdown tables to ascertain if income drawdown rates are a reasonable match to annuity rates.

“In light of GAD’s findings that withdrawal rates are a reasonable match to annuity rates, the Government will not change the basis on which the GAD tables are formulated.


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There are 2 comments at the moment, we would love to hear your opinion too.

  1. Given that dismally low annuity rates are the single biggest problem with translating pension funds into income, I fail to see how a broad match between GAD and OM annuity rates can be cited as any sort of justification for not reviewing Income DrawDown.

    Income DrawDown itself is in desperate need of overhaul and fundamental restructuring to break the shackle of annuity rates, not to mention removal of the punitive 55% death tax charge on unspent funds. This could be achieved by way of a Retirement Income Bond under which the (maximum) level of income would be geared to full depletion of the fund over the remaining lifetime of the Bond holder, allowing for a sensibly prudent rate of investment growth with a insurance element against early fund burn-out. Any unspent fund on death should be allowed to pass tax free into PP’s for the next generation.

    Whilst this probably wouldn’t increase dramatically the ratio of fund to income, it would surely improve it somewhat and address the common perception that annuities are poor value for money. Poor annuity rates are the principal reason why so many people are reluctant to lock away their money in a pension plan, allied to the constant fear of even the Tax Free Cash allowance being reduced or made subject to tax. Basic rate tax relief offers little in the way of compensation for these factors. If the government wants to “reinvigorate the UK’s savings culture”, it needs to take positive steps to address the widespread lack of public trust and confidence in pension doing so?

  2. for once I disagree Julian. other than increasing the trivial pension limit to 3% of the lifetime allowance, govt should commit to NO CHANGE to pension legislation for 5 or10 years to give a period of stability for people to plan for the long term!

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