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Boost for drawdown savers as GAD hits 3.25%

Savers in drawdown have received a boost after the GAD rate, which is used to calculate the maximum income a person in drawdown can take, increased from 3 per cent for September to 3.25 per cent for October.

According to LV=, the rise in the GAD rate means a 65 year in income drawdown with a £100,000 pension pot will be able to take up to £7,320 from their fund each year, compared with £7,080 under the previous rate.

LV= head of pensions Ray Chinn says: “For clients approaching retirement or in income drawdown, the latest GAD announcement is good news as it means they can choose to take a higher level of income.

“With standard lifetime annuities offering poor returns, solutions such as income drawdown and fixed term annuities should be considered.”

The rise in the GAD rate comes after the Government increased the drawdown income limit from 100 per cent of the equivalent GAD annuity rate to 120 per cent. This change came into force on 26 March.

In his March Budget, Chancellor George Osborne commissioned the Government Actuary’s Department to undertake a fundamental review of the assumptions underpinning drawdown rates.

The review followed representations made by the Association of British Insurers in November last year.

The trade body wants the GAD 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.

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