This is the alignment of the planets spelling low income for income drawdown investors. The new limits along with lower GAD and eroded fund values will see some investor’s income levels drop significantly with many unaware of the impending doom.
(PRWEB UK) 16 October 2012
The rate of GAD will fall from 2.25% to 2.0% next month, back to levels last seen in August where the rate fell to 2% for the first time in the rates history. The rate cannot fall below 2% so this really is rock bottom.
GAD is significant because this dictates the maximum level of income that can be taken from investments at retirement like Income Drawdown and Fixed Term Annuities. The real significance of the fall will be felt by those people who took out income drawdown plans five years ago and are about to undergo their income review. Under the current pension rules the maximum income allocable will be 100% of GAD however when the investors started the plan the maximum allowable was 120% of the GAD rate which was 4.75% five years ago.
Those about to undergo a review will also be subject to another significant factor, a reduced fund. Investors have been able to strip out an income level that has not been sustainable because investment fund performance has not been able to keep pace due to a flat stock market.
The new reality will be a lower max GAD on a lower GAD rate on a lower fund value, the combination will mean fall in come of around 60%.
Scott Mullen of My Pension Expert the retirement specialists said “This is the alignment of the planets spelling low income for income drawdown investors. The new limits along with lower GAD and eroded fund values will see some investor’s income levels drop significantly with many unaware of the impending doom.”
There is some light at the end of the tunnel though as there are some other options available to boost income levels following a review that could reduce the effect of the drop.
Scott went on to say “With options like the MGM advantage Flexible Income Annuity available, income levels could be achieved that are much higher than the maximum now allowable through income drawdown. The MGM annuity offers income based on the retirees health and life style and once calculated 120% of this rate can be taken as income. In many cases this will be higher than that offered from the Drawdown route”
With rates at historic lows there is no more important thing to retired and retiring people than to take advice from professional financial advisors and people should check that those giving them options at retirement are both independent and fully qualified to at least Diploma level.
My Pension Expert is a company of Diploma Qualified Independent Financial Advisors who specialise in the at retirement market.