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| 21 December 2012 last updated |
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| Income drawdown rates increase for females with gender neutral pricing |
With the introduction of gender neutral pricing the Government Actuary's Department (GAD) has changed the income from pension drawdown to match that of males making this option more attractive.
From 21 December the HMRC are changing income drawdown rates for females making the limits the same as for males.
This coincides with the gender neutral legislation being introduced by the EU Gender Directive to bring in the new Unisex annuity rates.
Unlike annuities, income drawdown uses the Government Actuary's Department (GAD)
tables to calculate the limits an individual can take for £1,000 of funds from based on age and the 15-year gilt yields.
For females the effect of the change is to increase the maximum income withdrawal from drawdown by 7-8% and is a real advantage for those that want to maximise this benefit.
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Advantages of income drawdown for females
Drawdown was changed recently to allow more flexibility for those retiring creating two versions, flexible drawdown and capped drawdown. The changes announced apply to capped drawdown.
There will be another benefit to females as the way capped drawdown is calculated is also changing. Currently this is 100% of GAD and the Chancellor has decided that this will increase to the original basis before April 2011 of 120% (see income drawdown for how this is calculated). For those already in drawdown and approaching their review dates now have the opportunity to maintain their income levels subject to gilt yields.
GAD rates use the 15-year gilt yields to determine limits for every £1,000 of income and yields have been reducing during the year as shown below:
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Gilt yields used to calculate drawdown (%) |
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| Apr |
May |
Jun |
Jul |
Aug |
Sep |
Oct |
Nov |
| 2.50 |
2.25 |
2.25 |
2.00 |
2.00 |
2.25 |
2.00 |
2.00 |
As yields reduce the income from capped drawdown decreases and broadly reflects pension annuity rates. At current levels a female with a fund of 100,000 would expected an income from drawdown of £4,950 pa and with the changes with gender neutral pricing and GAD limits (to be introduced probably in the tax year 2013) this will improve to £6,360 pa. This is a significant improvement to the annuity rates for a female on a single, level basis of £5,420 pa.
Additional risks of drawdown compared to annuities
Income drawdown allows a person to retain control of their fund and it remains invested. If the growth in the fund is lower than the income draw the fund value will reduce. If the combination of maximum drawdown and charges exceed growth the fund may be depleted over time.
Drawdown plans are reviewed every three years and a new maximum income determined based on the reduced fund value. This represents the greatest risk as income is likely to reduce over time if an individual selects the maximum drawdown.
In contrast annuities provided a known income for the persons lifetime although once the pension fund has been exchanged for an annuity if belongs to the insurance company. If annuity rates improve in the future the original annuity cannot be changed for a higher annuity income.
For seriously ill individuals an impaired annuity would offer an enhanced income based on medical conditions, however, in the event of death the annuity will cease immediately or after a guaranteed period if selected. In this situation capped drawdown would allow the fund to be available to their spouse to draw an income or buying annuities.
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Age |
Single |
Joint |
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55 |
£6,132 |
£5,784 |
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60 |
£6,532 |
£6,234 |
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65 |
£7,247 |
£6,808 |
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70 |
£8,170 |
£7,616 |
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£100,000 purchase, level rates, standard
Unisex rates and joint life basis |
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