Labour calls for retirement income review

Labour is pressing for a commission to tackle dramatic falls in retirement income as industry experts suggest a Government review of GAD rates due to gender equalisation could be extended to look at reforming income drawdown rules.

Labour Shadow Treasury financial secretary Chris Leslie (pictured) says a Government commission or review is needed to explore solutions to falling income levels available for those entering retirement.

In an interview with Money Marketing, he says: “The economy is going to be flat for a while, so we need to think of something that will help people hitting retirement. We need a review or commission to properly think up some options.”

Annuity rates have fallen by around 20 per cent over the past three years while annual drawdown payments have been dramatically reduced due to the Government cutting the maximum income from 120 to 100 per cent of GAD last year and falling gilt yields.

AJ Bell marketing director Billy Mackay says a 65-year-old male with a £250,000 pension pot has seen their maximum drawdown income fall from £20,400 to £13,750 in a year.

AJ Bell wrote to Treasury financial secretary Mark Hoban last year calling for an overhaul of the rules used to calculate drawdown income, which was rejected due to concerns about exhausting funds.

Money Marketing understands that Treasury officials have started work on equalising GAD rates before the Test-Achats ruling comes into force on December 21 this year.

MGM Advantage pensions technical director Andrew Tully says: “This is as good an opportunity as any for the Treasury to take a look at the whole drawdown process and I think they will come under a lot of pressure from providers to do that.”

Mackay says: “A review of the GAD tables ahead of the implementation of the gender directive seems like a good opportunity to consider reform.”

Leslie says he hopes a commission would look at drawdown income reform but suggests other issues are more pressing. He says: “The bigger issues are related to longer-term depressed annuity options, problems from Solvency II as they affect annuities and the need to recognise that those waiting for the optimum moment to purchase annuities are finding it increasingly difficult.”

A Treasury spokesman ruled out a retirement income review or commission.