Drawdown customers and their advisers must be aware that despite the 20% uplift being restored, their pension might not increase for a year, Skandia warns.
The maximum level of income a capped drawdown customer can withdraw is being increased from 100% to 120% (of an equivalent annuity) on 26 March 2013.
However, Adrian Walker, head of retirement planning at Skandia [pictured] warned the change will not come into effect until the start of a person's next ‘scheme year', so existing drawdown clients may not benefit from the increase until March 2014.
Walker said: "On the face of it, the uplift in the capped income calculation by 20% is great news. However, people may just read the headline and then expect their income to increase automatically when the change takes effect on 26 March. People need to be aware that it may take up to 12 months for the new income to take effect, and there may be cases where people will not see any immediate benefit as their income may already be based on the enhanced 20% formula (pre 6 April 2011 cases).
However, Walker added in some situations people might benefit from taking action after 26 March.
"Those looking to start taking capped income for the first time should consider waiting until after 26 March. Secondly, women already in capped income should look to trigger an annual review, as the use of the new gender neutral rates could mean higher income in addition to the 20% uplift in the formula. It is important people speak to their financial adviser to establish when the new calculation basis will affect their income, and whether any action is required" he said.
Reasons to be cheerful
Total investment reaches £9m
Medium to long-term capital growth