Some good news for savers about to take their pension particularly those considering alternatives to annuities or who have suffered steep cuts to pension income.
No one can doubt it’s lean times for those hoping to enjoy their retirement. But there is some good news on the horizon. Incomes from self-managed pensions will increase in September to their highest level since 2011: an effective increase of 5.5%. This is all thanks to something called the GAD rate which is pegged to long term Government bonds. It‘s the increase in this rate which has led to a jump in the amount that can be withdrawn.
In recent years the impact of the Government’s efforts to prop up the economy has seen pension incomes all but collapse. There are regular reports of pension income falling by more than 50%. These dramatic falls have had a negative impact on pensioners across the board because most will have planned their retirement on the basis of having a much larger income at their disposal.
When it comes to pension planning there are strict limits on what can be withdrawn to provide an income. Before this latest increase the amount was £6,120 on every £100,000 saved. This has now risen to £6,360.
As you may realise constraints are placed on pension withdrawals so savers don’t run out of pension. Pensioners must review their income drawdown every three years either with their drawdown provider or better still an adviser. However because of the uplift in GAD rates anyone who has suffered cuts to their pension income in recent years can seek a review of their situation. This is usually possible one year after the last review.
However although the 5.5% increase is welcomed, income levels from pensions are still far below what they were before the financial crisis. But things now seem to be heading in the right direction. The increase in gilt rates also signals a more positive outlook in the economy as a whole which will ultimately benefit all savers.