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The autumn statement provided better news for pension holders in income drawdown as the Chancellor announced that the maximum amount that can be taken from their pension pot would be restored to the 120 per cent limit.
In 2011, the maximum amount savers could take from their pension income was reduced from 120 per cent to 100 per cent of the annuity an individual could buy, determined by the Government Actuary’s Department (GAD).
The aim was to prevent pensioners from depleting their pots too quickly, but instead, reducing the maximum amount to 100 per cent resulted in many savers seeing a reduction in their incomes of up to 50 per cent. The situation was not helped by falling fund values and reports that the GAD rate had hit its lowest level ever.
It is thought that around 400,000 pensioners use drawdown as an alternative to annuity, and raising the income cap to 120 per cent will effectively increase the maximum income they are able to take home by 20 per cent.
Chancellor George Osborne announced that the increase will become effective from 26 March 2013.
Ted Hulme, benefits technician at Taylor Patterson, said: “Whilst ad hoc reviews cannot be requested at any point, they can be undertaken at the annual review date providing this is in advance.
“Therefore, if clients are in drawdown, it is worth them seeking advice once the change has become effective in order to explore whether or not it will be beneficial to their retirement income.”
For more information about income drawdown, please contact Ted Hulme on 01772 550786 or email firstname.lastname@example.org.