Those who are already in Pension Drawdown and those considering Pension Drawdown, should consider carefully the impact of the changes to the pension system announced by the Coalition Government and are now law.
The Good News –
- capped income will be available throughout a client’s lifetime
- the new tables provide age related factors up to age 85 which will benefit those clients, previously in Alternatively Secured Pensions, where income was based on an age 75 income factor regardless of age.
The Bad News –
- if you were in drawdown before 6th April 2011, then at your next 5 year review the new rules will apply & maximum income will reduce to 100% of GAD (from previously 120%) and reviews will be every 3 years
- those over 75 will have annual income reviews
Some see the biggest difference between the old and new regime has focused on the fact that the base income does not enjoy the 20% uplift included in the old calculations. Personally, I have guided clients to take a sustainable amount is income, which meant that we could benefit from increased income at the review dates rather than the maximum income today. You must always appreciate that this is an investment, so if the investment returns 6% and you draw 7% then your future income will diminish. Whereas, if you draw 5% and the investment returns are 7%, then at the review, because the portfolio has grown the future income can be increased (within GAD limits).
However, where clients are in an existing five-year reference period and use additional designation to top-up existing post A-Day capped income, the new maximum income applying for the remainder of the existing reference period will enjoy a 20% uplift using the new income factors.
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