The 2% floor in gilt rates, set by HM Revenue & Customs in 2011, should be lifted to 3% or 4% to ease financial pressure on pensioners in drawdown, a provider has said.
Rowanmoor Pensions said many pensioners are facing huge drops in retirement incomes from next month, as gilt levels fall to their lowest possible level of 2%.
The firm explained falling gilt yields severely reduce the amount that can be drawn from a fund under capped drawdown. A 70-year-old male can expect to face a reduction of about 9% in income per 1% reduction in gilt yields, Rowanmoor said.
August's rate is more than 3% lower than the 5.25% rate of August 2007. Pensioners who took an unsecured pension in August 2007 will be "severely affected" and see a considerable drop in income at their five year review, set for next month.
Rowanmoor said male pensioners in self-invested personal pensions (SIPPs) and Family SIPP schemes would be even worse off when gender neutrality starts in December.
The rule means all mortality rates for pension schemes with no sponsoring employer will be changed to become gender neutral. It is thought rates will improve for women and worsen for men.
The fall in gilt rates comes on top of changes implemented in April last year when the government reduced drawdown income from 120% of the GAD rate under unsecured pensions to 100% under capped drawdown.
David Downie, director of actuarial services at Rowanmoor Pensions, said the seriousness of the situation faced by drawdown pensioners "cannot be exaggerated".
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