Retirement: HMRC confirm higher GAD rate for women in Income Drawdown


HMRC has confirmed, that following the introduction in December of new EU rules outlawing gender discrimination in financial products, the maximum amount available to women from Income Drawdown plans, will rise to be in line with that rate available for men.

However, HMRC have said that the new rules will be reviewed when they see how Annuity providers react to the Gender Discrimination Directive.

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In a statement HMRC said: “The change being announced means that from 21st December 2012 women will be able to take a higher drawdown pension income than before (while) men will see no change in the maximum drawdown pension they can receive.”

The statement continued: “The ECJ (European Court of Justice) has said that changes implementing the judgment have to be in place by 21st December 2012.

However it is not yet certain how Annuity providers will actually implement it.”
“Until it becomes clearer how Annuity providers will apply the judgment in practice, the maximum drawdown pension for both men and women aged 23 and over should be calculated using the higher male rates in Table 1 from 21st December 2012.”

Income Drawdown rules

The maximum annual income allowed from an Income Drawdown plan is calculated by using the GAD (Government Actuary’s Department) rate, which in turn is based on an individual’s age, prevailing gilt yields and crucially gender.

Because men have a lower life expectancy than women, they have previously been allowed to take higher maximum annual incomes. However, this has to change with the introduction of the new rules banning gender discrimination.

There had been some doubt whether HMRC would lower the maximum income available for men, to bring them in line with women. However, it now seems, at least for the time being, that they will raise the threshold for women, bringing it in line men.

It is also clear that HMRC will keep the situation under review and may change their stance if Annuity providers reduce male Annuity rates to the same level as those available for women.

Good news for women in Income Drawdown

Current rules mean that the maximum income available from an Income Drawdown plan must be reviewed every three years for people below the age of 75 and annually over that age.

Many retirees who have undergone mandatory reviews over the past few months have experienced significant falls in the maximum income level. These reductions have mainly been caused by falling gilt yields, one of the key components of the maximum income calculation. Fluctuating fund values and the coalition government’s decision to reduce the maximum income available from 120% of the GAD figure to 100% have also pushed down the maximum income available.

Today’s announcement from HMRC is therefore good news for women due a mandatory review after 21st December 2012; hopefully the use of male GAD rates will offset some of the other factors pushing down the maximum income.

At least that is, until HMRC review the situation, and bring their rules in line with the precedent set by Annuity providers.

Annuity providers

Annuity providers have so far been quiet on how they plan to react to the Gender Discrimination Directive; with most saying they will make decisions in the final quarter of the year.

Most experts however, believe that Annuity rates for men will fall to the same level as those available for women, with the Treasury predicting a 13% fall in male Annuity rates.