Investors could turn their backs on drawdown as falling GAD rates cut the maximum pension income available, according to experts.
The Government Actuary’s Department has confirmed that GAD rates will fall from 4 per cent to 3.75 per cent in June.
This follows the Government’s decision to reduce the annual income available from 120 per cent to 100 per cent of the GAD basis figure.
Prudential head of business development Vince Smith-Hughes says: “While drawdown and the flexibility it provides suits many, the change in the GAD rate this month and the recent reduction to 100 per cent of GAD maximum withdrawal means that higher levels of income have been scaled back significantly. Other solutions such as asset-backed annuities will continue to increase in popularity as some retirees clamour to enjoy a higher sustainable income.”
Lowes Financial Planning technical analyst Barry O’Sullivan says the drop in GAD rates will push investors to use scheme pension as a “credible alternative”. He says: “Capped and flexible drawdown are not going to be the only alternatives to annuities.
“We think scheme pension is a credible alternative, particularly for drawdown clients who are about to experience a dramatic fall in income at their last five-year income review.”