This fall in the rate has to be seen as a backward step and is somewhat surprising given the recent increases in annuity rates.
Doncaster, South Yorkshire (PRWEB UK) 18 October 2013
The maximum income that can be taken from income drawdown and fixed term annuity contracts - the GAD rate - will fall to 3% next month. This has brought about the end of the 0.25% increases that had occurred each month from July this year. The announcement comes at a surprising time as annuity rates have increased by 6% in the third quarter of this year, the largest quarterly increase since August 2009 and rates overall are up by 12% since January, a two year high.
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 (UK government bonds), with low gilt yields equaling low annuity rates.
What the new rate means is that a 65 year-old in income drawdown will now only be able to take £59 per £1,000 from their pension fund, compared to £61 previously. An individual with £100,000 fund will now have to take £7,080 rather than £7,320. Scott Mullen from My Pension Expert said, "This fall in the rate has to be seen as a backward step and is somewhat surprising given the recent increases in annuity rates. Perhaps levelling the rate by maintaining it at 3.25% would have been a more reasonable move and it will be interesting to see whether this is a mere blip or a sign of things to come. Which is all the more reason why it is essential to seek professional help when purchasing an annuity."
Monitor GAD rates and their impact on the investments at retirement at My Pension Expert for regular news and updates.
My Pension Expert is a company of Diploma Qualified Financial Advisors specialising in options at retirement.