People approaching retirement should seek professional advice on how to drawdown their pension as they are likely to take a double hit from lower gilt yields and falling fund values.
Skandia says well planned pension fund withdrawal could increase the income a pensioner can take by more than 6% in the future.
Gilt yields, which are used to calculate income withdrawal contracts, are now at just 3.75%, Skandia says, their lowest since income withdrawal was introduced in 1995.
Pension funds have also been hit by falling investment markets, leaving many people worse off in retirement.
Skandia says advisers can help their clients increase their retirement income by keeping some pension money out of income withdrawal.
A number of pension schemes offer 'additional designation', according to Skandia, which means money transferred in withdrawal after gilt yields increase will automatically trigger a recalculation of income levels for the entire amount.
Skandia says a 55-year old female with a pension fund of £100,000 would see their income increase by 7.7% if gilt yields increase by 0.5%, while a 60-year old male would receive an extra 6.7%.
Careful planning could ensure that clients entering income withdrawal now can also benefit from higher income allowances in future years if interest rates and in turn gilt yields increase to their previous levels," says Skandia's head of tax and financial planning, Colin Jelley.
Contact: John Bakie, Tel: 020 7484 9805, e-mail: [email protected]IFAonline
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