Hornbuckle sees perfect storm for drawdown

Falling gilt yields are squeezing the income of thousands of retirees who are taking income directly from their pension funds, says Hornbuckle Mitchell.

The 15-year gilt index yield used to calculate the maximum that can be taken under capped drawdown has plummeted and was at 2.98 per cent last Friday.

This will be rounded down to 2.75 per cent for those having capped drawdown calculated in October. This is the lowest level since drawdown was introduced more than 15 years ago.

Hornbuckle says the change will hit all those planning to take income through capped drawdown for the first time and many existing drawdown customers who are facing their first reviews.

The Sipp firm says a 65-yearold man entering capped drawdown next month would be restricted to taking a maximum annual income of £5,800 per £100,000 of pension fund, more than 30 per cent less than the £8,400 maximum in March.

A woman of 65 will be restricted to £5,400, nearly a third less than the £7,800 allowed in March.

Senior technical consultant Lisa Webster says: “A combination of factors is making this look like the perfect storm for those in income drawdown. In April, the Government made the limits tighter under its new capped drawdown regime and this was followed by new basis figures from the Government Actuary’s Department that were also slightly less generous. Since then, the gilt index yield has fallen from 4.25 per cent to equal its record low of 3.25 per cent last week. But for next month, it will dive to 2.75 per cent.

“At a time when annuity rates are at record lows, there is a huge squeeze on those who either want to start drawdown or who have been in drawdown and are facing an income cut at their next review.”