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Avoid reducing your disposable income

Preston pension expert, Taylor Patterson, urges those in drawdown and taking benefits from their pension to consider their options before transferring funds to avoid reducing their income.

Kerry Houghton, business development manager at Taylor Patterson explains: “When moving from one pension arrangement to another, an earlier review will be triggered and because GAD rates are low at the moment, the amount of annual income you will receive could be negatively impacted.”

Pension income falls

The maximum income for new drawdown and fixed term income plans, called the GAD (Government Actuaries Department) fell to 2.25 in June 2012, compared with a high in March 2011 of 4.25.  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.

Kerry said: “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 may be affected.”

Impact on your pension pot

Illustrating the effect an earlier review could have on a person’s disposable income, Kerry explains:

“A 65-year-old man with a £500,000 pension pot could have drawn £42,000 per annum in March 2011.  Now, because of the reduced GAD rates and the Government’s decision last April to cut drawdown from 120% to 100%, the same person could only draw £27,500”.

Flexible drawdown option

“One option to avoid the pitfalls of GAD rates is to consider flexible drawdown, which could be appropriate for some individuals. 

“We recommend you speak to your financial adviser to discuss both your existing method of providing income and alternative pension products before a decision is made to transfer your pension.”

For further information on drawdown or pension reviews, contact Taylor Patterson on 01772 555073


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