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New low for pensions this January

The Government Actuary Department (GAD) rates fell to 2.5 this month, 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.

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 last year. 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 £28,000.

“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,” business development manager 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.”

GAD rates are set monthly, using the 15-year long-term gilt rates.

For further information contact Kerry Houghton on 01772 555073.

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