Retirement: New hope for Income Drawdown investors?


If recent press articles are to be believed there might be new hope for Income Drawdown investors, some of whom have been hit by falling incomes of up to 50%.

Income Drawdown, also known as Capped Drawdown, has long been one of the most popular ways, along with buying an Annuity, to take an income from a pension; however retirees who have selected this option have seen their incomes fall in recent years.

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The Investment Sense team of Independent Financial Advisers in Nottingham

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Lower GAD Rates

The maximum level of income, which can be taken from an Income Drawdown plan, is set with reference to the GAD (Government Actuary’s Department) rate, which in turn is calculated by looking at the 15 year gilt yield.

Over the past couple of years, principally because of Eurozone crisis and the fact the UK is seen as a safe haven for investors, gilt yields in the UK have fallen. Whilst this might be good news for George Osborne, as he tries to manage the economic recovery, it is bad news for Income Drawdown investors; if the gilt yield falls, so does the Gad rate and consequently the income which can be taken from their Income Drawdown plan.

The government dealt retirees a further blow in 2010 when it reduced the maximum income from 120% of the GAD figure to 100%. It also changed the length of time between mandatory reviews, when the income is recalculated, from five years to three years for pensioners below the age of 75 and yearly for older retirees.

Whilst the income reductions won’t take place until the next mandatory review, the government has shortened the time between reviews, consequently bringing forward the date when income levels are likely to fall.

Income Drawdown reviews

Whilst the media has concentrated mostly on the effect falling gilt yields have had on Annuity rates, the pressure has slowly been mounting on the government to review the

Income Drawdown rules, to prevent pensioner’s incomes being cut, especially at a time when inflation is expected to start to rise again.

It now seems as though the government might be listening.

The Telegraph newspaper believes that the government is in talks with the pensions industry, which could see a change to the rules before the end of the year, perhaps being announced in the Autumn Statement, which is due in early December.

The newspaper also reports that whilst any change may be temporary, HMRC are looking at a longer term solution to the problem.

Speaking to the Telegraph, pension’s expert Ros Altmann, said: “The drawdown rules are patently unfair and the Government needs to change them urgently. We are talking about prudent people, who have saved for their retirement, being told that they cannot have access to their own money.”

She continued: “The rules don’t work for anyone, but they are especially unfair for those in poor health because drawdown incomes, unlike annuities, make no allowance for decreased life expectancy.”

Our team of Independent Financial Advisers in Nottingham are experienced in developing retirement income strategies for clients the length and breadth of the UK.

If you already have an Income Drawdown plan or are nearing retirement and would like advice on your options call one of our IFAs today on 0115 933 8433, alternatively enquire online or email