Flexible annuities can still offer 120% GAD rate

The announcement means that people on flexible annuities will be able to continue to take up to 120 per cent of the Government Actuarial Department rate, rather than the new, lower rate of 100 per cent for those on capped drawdown.

This is because, unlike drawdown, a person on a flexible annuity cannot run out of money as there is a minimum income guarantee attached to it equivalent to 50 per cent of the benchmark annuity available at the outset.

Andrew Tully, pensions technical director for MGM Advantage, said: “The past year has seen the perfect storm of falling investment markets, improving longevity and falling gilt yields impact the income that drawdown customers can take.

“Combined with the reduction in the maximum income limit this creates a stark choice for customers and their advisers at income review time.”

He said people who might benefit from flexible annuities are those on income drawdown who are approaching their review and are seeing substantial falls in their maximum income.

Mr Tully added: “These people may want to use a flexible annuity when income falls may not be as drastic. While people may not want to constantly strip out the maximum income, flexible annuities give people the flexibility to take higher amounts when they need to.”

Flexible annuities allow people to take an income between 50 per cent and 120 per cent of the income they could receive from a conventional annuity. Income can be moved up and down within this range at any time.

Flexible annuities also let people benefit from mortality cross-subsidy. This means that on death, any remaining fund is used for the benefit of other annuitants. This allows a higher income to be withdrawn without increasing the risk of depleting the funds.