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Income boost for drawdown savers

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16/12/2013
Drawdown pensioners can increase the amount of income they take from their savings pot after the GAD rate for January was set at 3.25%, up from 3%.

GAD (government actuary department) rates are used to calculate the maximum income an income drawdown saver can access.

This means from January a 65-year-old income drawdown client with a £100,000 fund will be able to take £7,320 a year instead of the previous £7,080 maximum, according to LV=.

Ray Chinn, head of pensions and investments at the provider, said: “For the majority of people, retirement is no longer an absolute event whereby they hit 65 and leave the workplace forever. It’s become a phased event and income drawdown fits very neatly into that space.

“Indeed, one of the reasons clients use income drawdown is because it allows them to turn the ‘income tap’ on and off. For those clients that continue to work this is extremely useful as it means that they can access their fund, but can drip feed the income so they don’t end up in a higher tax bracket.”

Chinn added: “An income drawdown product could provide many with the flexibility they require and we would encourage people to seek advice and consider all the options available, in order to maximise their income in retirement.”

Standard Life reiterated its call for more stability for drawdown clients, setting out a five point plan to make life easier for pensioners:

1. Base pension drawdown limits on a combination of gilt and corporate bond investments.

2. Round up, not down – a simple move giving consumers the benefit of rounding would typically add another 3% or 4% income

3. Introduce a 3% floor on the yield used to calculate drawdown limits.

4. Average yields over six months. Rather than basing pension drawdown rates on security yields on a single day each month, they could use average yields over six months to reduce volatility and make planning easier.

5. Introduce enhanced drawdown rates for impaired lives.

Alastair Black, head of customer income at Standard Life, said drawdown rates became “fundamentally out of line” during the financial crisis.

He added: “Despite the fact rates are starting to realign they are still not right and, more importantly, they can get out of sync again. This puts drawdown users at an unfair disadvantage which is why it’s disappointing the Government Actuary’s Department decided to not change the approach to the calculations in the Autumn Statement.

“By simply bringing drawdown rates back into line with annuity market practice, the government can correct this anomaly and give drawdown users greater stability and certainty.”

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