Following a fall in long-term Gilt yields, the income people draw from their pensions under drawdown or pension fund withdrawal contracts is set to reduce. People that draw an income from their pension funds have maximum and minimum income levels set for them by the Government Actuaries Department every three years. These levels are based on a person's sex, age and the pension fund they have built up. They are also calculated in line with the long-term returns available from Gilt Edged Securities (Gilts) offered by the Government. It is up to the person taking the income how much or how little they take each year, between the allowed limits. Recently, the returns from long-term Gilts have fallen and the Government Actuaries Department has had to reduce both the maximum and minimum levels of income available. Many people use drawdown or pension fund withdrawal for both income (without retiring) and for inheritance tax planning. Generally, the reason for using a drawdown or pension fund withdrawal is to release some of your pension (especially the tax free cash lump sum) without having to fully retire and purchase an annuity.
Our View
Many people like to release their tax-free cash lump sum from their pensions but do not really need the income, if they are still working. For these people the reduction in minimum and maximum levels will be welcome. It means that if they have already been taking the minimum level of income, they can take even less this year, helping not to deplete the remaining pension fund. The other side is regarding those people that rely on taking maximum income from their pension funds. These people will see a reduction in the maximum amount allowed and could leave them with an income shortfall. Learn more about 'at retirement' options in the Pensions Adviser.com . Download our free fact sheet on unlocking cash from a pension.