Reinstating the 120% maximum drawdown limit will help ease the pain felt by pensioners. As one life office calls for the government to go further, advisers share clients' drawdown strife.
While the government’s move to reinstate the 120% GAD maximum drawdown rate will “make a real difference” many affected pensioners will have to wait until 2014 to feel the benefit, according to Standard Life.
The provider said this week the government should do more to ‘ease the pain’ suffered by drawdown pensions who have seen their income fall significantly, due to what had been described as the ‘perfect storm’ of unpredictable economic factors and regulatory changes. Some pensioners have seen income drawdown levels drop by 50%.
Alastair Black, Standard Life’s head of customer income solutions, said: “The problem is that, as the proposals stand, the higher 120% income limit won’t kick-in until the start of the client’s next drawdown year after 25 March. This means some clients won’t benefit for almost 14 months from now.”
It has really hacked people off
The firm said a client who started drawdown on, for example, 14 March 2012 would have to wait until 14 March 2014 to get the higher limit. However, a client who started drawdown two weeks later would benefit almost immediately.
Must go further
Black added: “We’ve asked HMRC to go further. We want the 120% limit to apply to any income review from then on. This would allow more drawdown clients to benefit sooner, helping them and the economic recovery. It’s fairer. And there’s no extra administration burden for drawdown providers.”
Graeme Mitchell managing director at Lowland Financial, said amending drawdown limits would be helpful for many reasons.
“As Standard Life suggest timing can work against you. I have someone [who turns] 75 on 26th of this month who will convert to drawdown to secure his tax free cash but will have to wait will March 2014 for the 120% income.”
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