Gov’t must change drawdown rule: AJ Bell
The government must reintroduce a 120 per cent multiplier for drawdown as the gap between annuity and drawdown rates widens, Billy Mackay has urged.
The marketing director for AJ Bell said rules should be changed to allow rates to be adjusted according to a client’s age.
He said: “In the short term we would like the government to reintroduce the 120 per cent multiplier, instead of 100 per cent of the government actuary’s department rate, to cater for the period during which a more detailed review will be carried out.
“There is a case for a percentage of the fund you can take up to age 75, which is protected by a three-year review.
“If I were to take a drawdown contract, the provider would look at my age, gilt conditions and the GAD rate.”
In an open letter to Mark Hoban, financial secretary to the Treasury, Andy Bell, chief executive of AJ Bell, said the five-year income drawdown reviews were seeing a drop in the underlying gilt yield from 5.25 per cent to 2 per cent, which was compounded by the removal of the 20 per cent uplift on GAD rates.
He said annuity rates were now running at between 10 per cent and 20 per cent higher than drawdown.
Mr Bell warned that due to this incomes were dropping by between 30 and 50 per cent.
Ros Altmann, director general of Saga UK, said the drawdown rate was calculated on the basis of 15-year gilt yields. She said that while annuity rates had also fallen, drawdown rates had plummeted more.
She said: “If pensioners were allowed to take more income it would create more revenue for the government.”
Ms Altmann said the government was concerned that pensioners could deplete their whole fund if access was extended, but claimed: “The whole point of going into drawdown is to give yourself the flexibility of extra income
“It is far-fetched for the government to imagine that someone would run out of money and fall back on the state. People will have other assets put aside, and a home.”
HM Revenue & Customs announced that due to the European Union gender directive, that from 21 December 2012 the rates used to calculate the maximum amount of income a female can take from her pension each year in drawdown will be based on male life expectancy rates.
According to Skandia, this could account for 8 per cent in the maximum income withdrawal limit available to females.
Tim Stalkartt, head of financial planning for Bestinvest, said: “This change is sensible, especially in light of the all-time low GAD interest rate of 2 per cent. As a result women will be able to take a higher drawdown income while the drawdown income of men will remain unchanged.”