The maximum income that can be taken from income drawdown and fixed term annuity contracts – the GAD rate – will remain at 3% next month. It's the fourth consecutive month that it's been maintained, the last time such stability in the rate occurred was nearly six years ago. It's the third GAD rate announcement since the Budget, where it was revealed that from April next year there will no longer be any restrictions on how individuals over 55 can access their pension pots, making the GAD rate obsolete in the process.
Income drawdown allows people to keep their pension pot invested but withdraw an income from it each year. However, the amount of income that can be taken is set by the Government's Actuary's Department (GAD) and is known as the GAD rate. The GAD rate is set against standard annuity rates which in turn are influenced mainly by gilt yields (
In the interim until next April, retirees invested in drawdown have seen their annual income cap raised as they are now able to withdraw 150% GAD instead of the previous 120% GAD. As well as increasing the annual income cap, the Budget has also made changes to the minimum income requirement (MIR) needed to apply for flexible drawdown. Reducing it from £20,000 of secured income to £12,000, meaning that is has become a viable option for even more people.
While both of these new measures will award greater flexibility to anyone considering drawdown, the introduction of the 150% GAD rate limit should be treated with a degree of caution. As while there is an obvious appeal to taking a higher income in the years immediately after retirement – when health is likely better – doing so risks eroding a fund's future growth potential and could even eat into the capital.
Monitor GAD rates and their impact on the investments at retirement at My Pension Expert for regular news and updates.
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Read the full story at http://www.prweb.com/releases/2014/06/prweb11951402.htm
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