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
Voices
There will be a chance to bid for a rare example of the SAS Diary, collated by a former member of the regiment in the aftermath of World War II but only published – in a limited run of just 5,000 – in 2011
charity appealTime is running out to secure your favourite lot as our auction closes at 2pm today
News
Elton John and David Furnish exchange marriage vows
peopleSinger posts pictures of nuptials throughout the day
News
File: James Woods attends the 52nd New York Film Festival at Walter Reade Theater on September 27, 2014
peopleActor was tweeting in wake of NYPD police shooting
Sport
Martin Skrtel heads in the dramatic equaliser
SPORTLiverpool vs Arsenal match report: Bandaged Martin Skrtel heads home in the 97th-minute
PROMOTED VIDEO
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

    $200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

    Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

    $125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

    Sheridan Maine: Commercial Finance Manager

    Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

    Sheridan Maine: Regulatory Reporting Accountant

    Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

    Day In a Page

    Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

    Clocks, rifles, swords, frogmen’s uniforms

    Surrounded by high-rise flats is a little house filled with Lebanon’s history
    Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

    Four months after the bombardment, Gaza’s wounds are yet to heal

    Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
    Gastric surgery: Is it really the answer to the UK's obesity epidemic?

    Is gastric surgery really the answer to the UK's obesity epidemic?

    Critics argue that it’s crazy to operate on healthy people just to stop them eating
    Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

    Homeless Veterans appeal: Christmas charity auction

    Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
    Pantomime rings the changes to welcome autistic theatre-goers

    Autism-friendly theatre

    Pantomime leads the pack in quest to welcome all
    The week Hollywood got scared and had to grow up a bit

    The week Hollywood got scared and had to grow up a bit

    Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
    From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

    Panto dames: before and after

    From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
    Thirties murder mystery novel is surprise runaway Christmas hit

    Thirties murder mystery novel is surprise runaway Christmas hit

    Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
    Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

    Anne-Marie Huby: 'Charities deserve the best'

    Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
    The botanist who hunts for giant trees at Kew Gardens

    The man who hunts giants

    A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
    The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

    The 12 ways of Christmas

    We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
    Birdwatching men have a lot in common with their feathered friends, new study shows

    The male exhibits strange behaviour

    A new study shows that birdwatching men have a lot in common with their feathered friends...
    Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

    Famous diaries: Christmas week in history

    Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
    From noble to narky, the fall of the open letter

    From noble to narky, the fall of the open letter

    The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
    A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

    A Christmas ghost story by Alison Moore

    The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'