Pension income hits all-time low
The Government Actuary Department (GAD) rates fell to 2.75 in October, compared with a high this year of 4.25 in March. GAD rates, along with an individual’s age, gender and pension scheme value, are used to calculate the amount that can be drawn as annual income.
To illustrate the effect this can have on a person’s budget, a 65-year-old man with a £500,000 pension pot could have drawn £42,000 per annum in March this year. Now, because of the reduced GAD rates and the Government’s decision in April to cut drawdown from 120% to 100%, the same person could only draw £29,000.
“This can make a significant difference to people’s disposable income and unfortunately there is little that can be done to avoid it, which is why it is important to spend sensibly,” associate director at Taylor Patterson, Kerry Houghton, said.
“One option may be to consider flexible drawdown, which could be appropriate for some individuals. It is hard to say whether GAD rates may improve in the near future, but anyone who is in drawdown and is due a review will be affected.”