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Drawdown double whammy

Investors face lower retirement income if they move their entire pension pot into income drawdown, says Skandia.

It says the double whammy of turbulent market conditions and low interest rates, which have seen gilt yields fall, is likely to cut the amount of income drawdown that investors can take.

Gilt yields are used to calculate maximum income levels for drawdown contracts – the February figure of 3.75 per cent is the lowest since drawdown was introduced in 1995 and the figure for March is only slightly better at 4 per cent.

But Skandia says advisers can help their clients get higher income levels – potentially up to 6 per cent – by leaving a small amount of money unvested in their pension fund.

This could enable investors to use the “additional designation” option which allows them to move the remaining money into drawdown when investment markets or gilt yields improve.

Head of tax and financial planning Colin Jelley says: “Careful planning could ensure clients entering drawdown now can also benefit from higher income allowances in future if interest rates and gilt yields increase to their previous levels.”

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