Changes like this in the market prove why it is essential to seek professional help when purchasing an annuity, as that way you are guaranteed the very best deal available that suits your individual circumstances.
Doncaster, South Yorkshire (PRWEB UK) 18 February 2014
The maximum income that can be taken from income drawdown and fixed term annuity contracts - the GAD rate - will fall to 3% next month. It is the first time this year that the rate has fallen, with the last occurrence happening four months ago when the rate also fell from 3.25% to 3% in November.
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 equalling 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 annual income cap will impact negatively on those in drawdown as the reduction in income may put increased strain on their finances. Changes like this in the market prove why it is essential to seek professional help when purchasing an annuity, as that way you are guaranteed the very best deal available that suits your individual circumstances."
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.