Drawdown rule changes could cost pensioners

New regulations are likely to hit hundreds of people on flexible incomes, says Sarah Davidson

Pensioners taking income drawdown could see hundreds of pounds knocked off their annual income as soon as April next year. The news that yet more changes are in store for people opting to draw a flexible income out of their pension pot will come as a blow, as the Government has already chopped and changed the rules twice in the past two years.

A 65-year-old male with a £100,000 pension pot who agreed his drawdown rate before 26 March this year generates £5,800 of income a year. In January, the Government confirmed that anyone agreeing income drawdown after this date would be eligible for 20 per cent more income and could take £6,960 out of their pot each year.

But an official Treasury review of drawdown which has just started could see this uplift fall back by 8 per cent next April according to Aviva's pension expert John Lawson.

"This 20 per cent uplift was only supposed to be a stop gap. People should think about locking into that higher level in the next year just in case the Government does decide to drop the maximum back down."

The review is of government-set rates used by pension providers to determine how much income people can take each year and has been prompted by rock-bottom annuity rates and low gilt yields.

Pensions expert Ros Altmann says reversing the uplift as soon as next year would be "outrageous".

"The whole point of this was to give people who don't want to have to buy an inflexible and poor-value annuity the choice to take more of their savings when they want to," she says. "The Government already imposes too many restrictions on how much they can withdraw through income drawdown. Cutting this further would be a disaster."

Other pension firms say there is no guarantee the Government will change the rate again but admit it's worth speaking to your financial adviser or provider in the next year to see whether you should lock in to the higher annual allowance while it's available.

"There's nothing to lose by opting to review your income on your next drawdown anniversary and take advantage of the new maximum if you want to," says Richard Bean from AWD Chase de Vere.

The maximum is calculated as 120 per cent of the equivalent income generated by taking a single life annuity, which would lock you into a fixed monthly income for life. Opting for income drawdown means you can decide how much you take and when – up to this limit.

But Prudential's Vince Hughes-Smith urges caution. "People need to think about a sustainable level of drawdown income rather than the maximum," he says.

Andrew Tully, a pensions expert at MGM Advantage, warns that even with the 20 per cent uplift available this year people should still brace to see their incomes fall if they haven't reviewed in a few years.

He calculates that in an average situation where a fund has seen a 5 per gross return since 2008, anyone opting for the maximum allowance this year would still suffer a 35 per cent drop in annual income because rates have fallen so much.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Suggested Topics
John Travolta is a qualified airline captain and employed the pilot with his company, Alto
people'That was the lowest I’d ever felt'
Life and Style
healthIt isn’t greasy. It doesn’t smell. And moreover, it costs nothing

Other places that have held independence referendums
Arts and Entertainment
Pharrell dismissed the controversy surrounding
musicThe singer said 'the last thing I want to do is degrade'

Arts and Entertainment
Blossoming love: Colin Firth as Stanley and Emma Stone as Sophie, in 'Magic in the Moonlight'

Actors star in Woody Allen's 'Magic in the Moonlight'

A male driver reverses his Vauxhall Astra from a tow truck
newsThe 'extremely dangerous' attempt to avoid being impounded has been heavily criticised
peopleThe Times of India said actress should treat it as a 'compliment'
Arts and Entertainment
Jack Huston is the new Ben-Hur

It scooped up an unprecedented 11 Academy Awards when it was first remade in 1959


Watch this commuter wage a one-man war against the Circle Line
Home body: Badger stays safe indoors
lifeShould we feel guilty about keeping cats inside?
Life and Style

Olympic diver has made his modelling debut for Adidas

Arts and Entertainment
Toby Jones (left) and Mackenzie Crook in BBC4’s new comedy The Detectorists
tvMackenzie Crook's 'Detectorists' makes the hobby look 'dysfunctional', they say
Arts and Entertainment
Maxine Peake plays Hamlet at Manchester's Royal Exchange
theatreReview: Maxine Peake brings emotional ferocity to Shakespeare's starring part
10 best table lamps
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Trainee Recruitment Consultant Birmingham

    £18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...

    Trainee Recruitment Consultant - Birmingham - Real Staffing

    £18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

    Recruitment Consultant - Soho - IT, Pharma, Public Sector

    £20000 - £25000 per annum + OTE £35,000 first year: SThree: The SThree group i...

    Sales Executive

    £20 - 24k (Uncapped Commission - £35k Year 1 OTE): Guru Careers: We are seekin...

    Day In a Page

    Mystery of the Ground Zero wedding photo

    A shot in the dark

    Mystery of the wedding photo from Ground Zero
    His life, the universe and everything

    His life, the universe and everything

    New biography sheds light on comic genius of Douglas Adams
    Save us from small screen superheroes

    Save us from small screen superheroes

    Shows like Agents of S.H.I.E.L.D are little more than marketing tools
    Reach for the skies

    Reach for the skies

    From pools to football pitches, rooftop living is looking up
    These are the 12 best hotel spas in the UK

    12 best hotel spas in the UK

    Some hotels go all out on facilities; others stand out for the sheer quality of treatments
    These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

    Widespread fear of Isis is producing strange bedfellows

    Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
    Topshop goes part Athena poster, part last spring Prada

    Topshop goes part Athena poster, part last spring Prada

    Shoppers don't come to Topshop for the unique
    How to make a Lego masterpiece

    How to make a Lego masterpiece

    Toy breaks out of the nursery and heads for the gallery
    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
    Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

    Ian Paisley’s decision to make peace with his IRA enemies

    His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    Exclusive extract from Janis Winehouse's poignant new memoir
    Is this the role to win Cumberbatch an Oscar?

    Is this the role to win Cumberbatch an Oscar?

    The Imitation Game, film review
    England and Roy Hodgson take a joint step towards redemption in Basel

    England and Hodgson take a joint step towards redemption

    Welbeck double puts England on the road to Euro 2016
    Relatives fight over Vivian Maier’s rare photos

    Relatives fight over Vivian Maier’s rare photos

    Pictures removed from public view as courts decide ownership
    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    Donatella Versace at New York Fashion Week