A return to 120% GAD rates

Update; April 29th 2013

The Government has now realised that reducing GAD rates was a big mistake and reinstated the 120% GAD as of late last month. Such meddling with pensions creates huge problems when offering Retirement Advice and can only put those who have never taken advice before in an awkward position of who to turn to.

Have a look at the article below and it will give you some views of how these GAD rate changes will affect your pension. Its worth noting that who ever your pension plan is with will determine how your GAD rates are reviewed and whether they can be reviewed sooner.

The Government has published draft legislation which confirms the increase to 120% of GAD will apply to all drawdown pension years starting on or after the 26th March 2013.

The increase in maximum income is still reliant on a change to primary legislation, yet the draft Finance Bill will not receive Royal assent until the summer.  However, the Government is likely to issue a resolution on 25 March 2013 which should provide the industry with comfort that they can apply the changes before the Bill receives Royal Assent.  Providers will not have to implement the change sooner.

At this stage, the Government is still asking the industry to feedback any comments on the draft legislation, and that these should be submitted to them by 6 February 2013.
The implementation date could therefore still change.

The information from HMRC can be accessed from http://www.hmrc.gov.uk/budget-updates/march2012/finance-bill-2013-draft.htm#cc

GAD rate calculator

Initial article

The Chancellor has bowed to continued pressure to reinstate the 120% drawdown limits for those in capped drawdown pension schemes. The move has been welcomed by the pensions industry together with those who had seen a squeeze on their income who were already in drawdown.

Although no time scales have been put on the changes, this will effect primary legislation and so it will need to be included in the Finance Bill 2013.

Publication of draft legislation is expected in January 2013 for consultation and will then be included in Finance Bill 2013 which is likely to come out after the budget. Finance Bill 2013 is unlikely to receive Royal Assent until at least July 2013.

It is understood the government are keen to implement the changes as soon as possible but will need to consult providers to understand how quickly systems can be adapted to incorporate the new rates.

Depending on whether the providers are willing to act on draft legislation in early 2013 this could be implemented by 6th April.

We offer a free review of your existing drawdown pension to see if we can save on your charges.

In the Autumn statement delivered to the house of commons George Osborne announced

I have also listened to concerns from pensioners about draw down limits.   

I am today announcing that the Government will raise the capped drawdown limit from 100% to 120%, giving pensioners with these arrangements the option of increasing their incomes.”

The increased limits allow for more income to be taken, increasing the attractiveness of drawdown schemes when compared to conventional annuities. With the current 100% limits, maximum income allowed from a scheme was usually under that which could be achieved by taking a conventional annuity.

The advantages of drawdown schemes allows the retiree to keep their money invested with the aim of growing wealth, together with giving the flexibility to take an income up to maximum limits set by the government actuarial department (GAD). Some have argued that performance of stock markets in recent years have resulted in little growth and therefore a need to reduce allowable income. There is always going to be a fear that if maximum income is taken from the fund without significant growth the fund will run out part-way through retirement. However those entering capped drawdown schemes should understand the downside risk as well as the upside potential.

The pressure on the 100% threshold has been a result of historic low gilt rates, which GAD rates are based on, and has left those under previous 120% regimes suffering a significant drop in available income at their 3 yearly reviews.

RetireRight welcomes the chancellors decision in recognising the impact the 100% limit had on existing retirees and in opening the door again for those looking for viable annuity alternatives at retirement.

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