Pensions 'cut by drawdown rules'

Those who wish to maximise their income for later life may wish to seek pension transfer advice in order to find the best products that will help them do so.

This may be a particularly pressing concern for those who are approaching retirement, as it has been noted changes to drawdown rules are contributing to a large cut in retirement income.

AJ Bell is calling on the coalition to take action to address this concern, noting the damage is particularly debilitating to pensioners as other factors are also damaging the finances of older Brits.

Gilt yields are at near record lows and it was calculated many people faced reduced savings revenue of up to 32 per cent.

The Government Actuary's Department (GAD) prepares tables that are used to calculate the maximum amount of money that is allowed to be withdrawn from drawdown.

A comparable annuity of 120 per cent has formed the basis of this in recent years, but this was reduced to 100 per cent in April 2011.

It was stated gilt rates have drastically fallen since then and marketing director for the self-invested personal pension provider Billy MacKay warned this poses a threat of hardship to people who have worked very hard to make adequate savings preparations.

"The government wants to protect those who opt for drawdown instead of annuities from exhausting their pension pots but we've seen little evidence to suggest this is happening," he remarked.

"It needs to fundamentally question the logic of linking drawdown income rates to gilts and instead look at fixed income factors linked to the client's age," the expert suggested, calling for a return of the 120 per cent rate in the meantime.

AJ Bell recently noted these factors will compound problems already faced by savers who are being particularly badly hit by high levels of inflation.

Ashall Glover Financial Services, pension transfer specialists

Posted by Jonathan Breen