The government should consider introducing a "cap and collar" agreement on the Government Actuary's Department (GAD) rates which are used in drawdown calculations, a provider says.
Hornbuckle Mitchell said the move - which is an agreement not to go above or below certain interest rates - would introduce greater certainty to retirement income projections and limit fluctuations.
The self-invested personal pension provider said GAD rates are at an all-time low because quantitative easing and Solvency II has pushed down gilt yields.
Head of sales Stewart Dick (pictured) said: "This is impacting unfairly on people in drawdown who are seeing their incomes squeezed due to these unprecedented government and regulatory measures."
He explained if HM Revenue & Customs (HMRC) allowed the industry to use a collar of about 3% to 4% of GAD, and a cap of between 5% and 6% advisers and clients could plan ahead with some certainty.
Dick also said the move would level the playing field when comparing drawdown with annuities.
"The actual levels used could be open for consultation but I think the concept is a valid one," he added.
For instance, for a 65-year-old man with a £200,000 fund in August 1997 (when the gilt yield was 7%) maximum income was £21,360, including 120% of GAD.
By contrast, on 1 April 2012 (with the gilt yield at 2.75%) the same individual was entitled to maximum income of only £11,600 - a difference of nearly £10,000.
Dick said if HMRC allowed a collar of 3% and a cap of 5%, the difference in income could be narrowed to less than £3,000, because a collar of 3% would generate maximum income of £11,800 a year and a cap of 5% would give maximum income of £14,600 a year.
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First mentioned in Cridland Report
Second acquisition of 2019