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Drawdown suffers in quantitative move

Income-drawdown investors could see their annual withdrawal limit drop significantly as a result of the Bank of England’s quantitative easing programme, says Scottish Life.

The bank’s policy has pushed up the price of gilts and caused gilt yields to plummet. This has seen the Government Actuary’s Department rate drop from 4 per cent in March to 3.25 per cent in April.

Scottish Life says that a male aged 60 with a pension pot worth £75,000 after tax-free cash has been taken could draw £4,500 in March but, due to the effect of quantitative easing, in April, the same man could only draw £4,125 each year – a reduction of 9 per cent.

Pensions technical manager Maureen Duckworth says: “The focus has been on annuity rates but quantitative easing also has an impact on people in drawdown and not just new investors but people who have to review their income. Advisers need to be watching GAD rates carefully.”

Pharon IFA Nick O’Shea says: “I think this will have a more detrimental impact than similar falls in equity markets. A fall of 1-2 per cent in the Government Actuary’s Department’s rate is pretty significant because you cannot avoid it whereas in equity markets you can make allowances for it. But I believe the GAD rate will go back up in due course, particularly as inflation and interest rates rise.”

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