Retirement planning can overcome falling gilts

According to Adrian Walker, the latest 15-year gilt yield has fallen to a new record low of 2.25 per cent and the value of the pension fund also affects pensioners’ income.

Mr Walker said: “When a person reaches retirement, all too often they take their maximum tax-free cash lump-sum, which means the entire fund goes into drawdown.

“They may or may not then take an income with the remaining fund. People need to be aware of the advantages keeping a small lump-sum in their pension can have when they come to drawing an income from their pension.”

According to Mr Walker, the 15-year gilt yield plays a crucial role in determining the level of income pensioners are able to take, as does the size of a person’s pension fund, and age-related income factors provided by the Government Actuary’s Department.

He said the decline of the 15-year gilt yield will have a sizeable effect on those who are now considering the use of income withdrawal or annuities to provide retirement income.

It will also affect those already in income withdrawal if their maximum income becomes subject to a statutory review in the coming months.

Mr Walker said when pensioners go into drawdown, they should ensure they keep some back, even if it’s just a small amount. They should wait for stock markets or gilt yields to pick up and then put that amount into drawdown.

Mr Walker said: “Holding a small amount back and drip-feeding it into drawdown, possibly on a regular basis, could increase a person’s chances of raising their overall income level if stock markets or gilt yields improve.

“Importantly, the entire pension can benefit from any improvement in maximum income calculations if the pension arrangement is structured in this way.

“This can give hope to those who can’t wait for gilt yields to improve before they start to take an income from their pension. Not all pension contracts offer this flexibility, so people need to check with their provider what options they have, and seek professional advice from their financial adviser.”

Simon Webster, managing director of Kent-based IFA Facts & Figures Financial Planners, said: “This clearly demonstrates both the importance and the value of quality independent financial advice for clients and the importance of staying up-to-date for advisers.”