So far, 2014 has seen a complete overhaul of the pensions industry and income drawdown has not escaped. With effect from 27 March – just eight days after chancellor George Osborne delivered his Budget address – changes were made to both capped and flexible drawdown which increased both the number of people who can use the product, and how much cash they are able to access.
Additionally, the maximum-capped drawdown increased from 120 per cent to 150 per cent of the Government Actuarial Department (Gad) rate, and the minimum income requirement for flexible drawdown was significantly reduced, from £20,000 to £12,000.
A further spanner was thrown into the works during the Budget speech when Mr Osborne announced that people at-retirement would no longer need to buy an annuity and that retirees would be able to release all their pension pot in on go. Greater access to drawdown was granted, thus potentially getting rid of the two simple options under drawdown rules we have today: Capped drawdown – a limited amount of income that can be withdrawn to a level limited to the Gad rate – and flexible drawdown – which has no withdrawal limits but is only available to retirees who can demonstrate at least £20,000, now £12,000, a year of a secured pension income from sources such as their state pension, a workplace pension scheme or a lifetime annuity.
As of 6 April next year, more of these limits will be pushed away and anyone will be able to take as much or as little from their pension fund at any given time. Provided they have taken some guidance from the Money Advice Service (Mas) or The Pensions Advisory Service (Tpas) at retirement, dutifully paid for by financial advisers by way of a levy.
Can’t see wood for the trees
These proposed changes initially sent the pensions industry into disarray, with many annuity providers seeing huge drops in share prices on the day of the Budget and others wondering what the future of annuities and indeed drawdown would be.
Claire Trott, head of technical support at Talbot & Muir, is confident, “Increased flexibility in the drawdown market can only be a good thing, especially for advised clients where their adviser can help them make the best of their retirement fund. Those that don’t have advisers are at greater risk of using the whole of their fund or investing inappropriately for the long-term sustainability of their fund for the remainder of their lives.
