Budget 2013: Triple boost for drawdown users

Dave Downie

A 20 per cent hike in pension drawdown limits has been confirmed. And there’s an added bonus, with the barrier to transferring protected pre-April 2011 drawdown cases removed and an overhaul of the GAD drawdown rates.

Higher income limit

The existing income limit will simply go up by 20 per cent from the start of the client’s next drawdown year after 25 March 2013. It’ll happen automatically - there’s no need for a formal income review.

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This means some clients will have a year’s wait for the income hike. But advisers may be able to help give an immediate income boost, and supercharge the 20 per cent increase when it does come, by triggering a review of the existing limit in the interim.

Transfer barrier lifted

Until now, anyone transferring a pre-April 2011 drawdown pot with a protected 120 per cent income limit dropped down to the 100 per cent limit from the start of their new drawdown year. This created a real barrier to these transfers, effectively trapping many clients with their existing drawdown provider.

The existing 120 per cent income limit will now continue after a transfer until the scheduled 5 yearly review date, creating a level playing field for clients and their advisers. And this change is backdated - it applies to any transfers of protected pre-April 2011 drawdown funds made in a drawdown year starting after 25 March 2012.

Review of Gad rates

Gad drawdown rates are supposed to mirror market annuity rates. But they don’t - increasing the pain for drawdown users in recent years.

A review of the table has been kicked-off to get the rates back on track, potentially further boosting drawdown income limits from later this year.

All in all a great budget for those seeking flexible retirement income.

Dave Downie is technical manager at Standard Life