Treasury financial secretary Mark Hoban has dismissed concerns about capped drawdown despite clients facing significant drops in the income they can withdraw.
Under capped drawdown, which came into force in April last year, the maximum amount a person can withdraw from their pension pot each year was reduced from 120 per cent of the equivalent Government Actuary’s Department annuity rate to 100 per cent. This, coupled with plunging gilt yields, has slashed savers’ pension income.
This month, Money Marketing revealed that the Association of British Insurers is discussing the issue with members ahead of formal talks with the Government.
Conservative MP for Milton Keynes South Iain Stewart wrote to Hoban in January after a constituent raised concerns about their falling drawdown income.
In his response, sent on March 20 and seen by Money Marketing, Hoban says: “Whilst the Government reforms to extend and improve capped drawdown gives greater freedom, they do interact with the effectiveness of a fund manager’s strategy and gilt rates to determine the maximum drawdown.
“The Government appreciates that in the short term, some of the other factors affecting drawdown rates may be combining with the change in the annual withdrawal limit to reduce individuals’ total drawdown income.
“However, the Government’s reforms are based on longer-term considerations, we are confident that the reforms will improve flexibility and income sustainability for savers for the future.”
Evolve Financial Planning director James Norton says: “A lot of investors will be disappointed the Treasury does not want to provide any relief on capped drawdown.”