Tax-Free
Cash the income
drawdown service can help you take a tax free lump
sum from your pension and leave the fund invested
for a flexible income in retirement.
Drawdown
now for flexible income at retirement!
If you are retiring now, you can choose a range
of incomes from your plan and leave your fund invested,
see drawdown quote
Basis amount
The GAD tables are used to determine the basis amount which represents the value of a comparative annuity on a standard single life, level with no guarantee basis. This calculation contains the following elements:
•
Determine the reference date;
•
Members age rounded down to complete years;
•
FTSE 15-year gilt yield (or 5-year if under 23 years of age) rounded down to the nearest 0.25%;
•
Use the GAD tables to extract the basis amount per £1,000 of pension fund;
•
Use the calculation to determine the basis amount.
This procedure to calculate the basis amount can be used for an unsecured pension fund or alternatively secured pension for males, females and children pension members. Members can withdraw an income from 0% to 120% of the basis amount calculated for income drawdown and from 65% to 90% of the basis amount for an alternatively secured pension.
Reference dates
The reference date represents the first day of the reference period. This is the date the member first designates their pension to be used for an unsecured pension fund such as income drawodwn.
In some circumstances the scheme administrator may decide to use a nominated date for which there is a 60 day window
available after the reference date. For subsequent 5-year reviews the date used will either be the reference date or the nominated date if this is different.
The age of the member is calculated in complete years attained before the reference date. For an alternatively secured pension this date will be the members 75th birthday.
Gilt index yields
To determine the annuity rates, annuity providers
make reference to yields available at the time of purchase on government bonds with level coupons (conventional gilts) and corporate bond yields.
To calculate the basis amount GAD has selected the gross redemption yield on UK 15-year gilts from the FTSE UK Gilts Indices. This is published daily in the Financial Times
and the date to use is the 15th day of the calendar month before the reference date. If this is not a working day then use the yield for the working day immediately preceding the 15th. In the case of a member aged 23 years and younger, the 5-year index yields must be used instead.
Once this yield is obtained
it must be rounded down to the next 0.25%. If the yield is an exact 1/4% there is no need to round down. The formula to calculate the basis amount is as follows:
[£ pension fund / £1,000] x £ basis income per £1,000
Where "£ pension fund" is the members fund value and "£ basis income per £1,000" is the figure taken from the GAD tables for a given age and gilt index yield.
GAD tables
As set out in Schedule 28 of the Finance Act 2004 the purpose of the GAD tables is to provide the basis amount per £1,000 of pension fund from which the member can calculate the
value of a comparative annuity on a standard single life, level with no guarantee basis. There are tables for Males, Females and Children which apply equally to unsecured pension funds and alternatively secured pension funds including any protected rights pensions.
These tables apply to Males only aged 23 to 74 years (age examples are shown below) for unsecured pension funds such as income drawdown and aged 75 for alternatively secured pension funds.
FTSE 15-year gilt yield: 4.57% (15 April 2008)
MALE tables
age now
FTSE 15-year gilt index yield
4.25%
4.50%
4.75%
5.00%
5.25%
5.50%
23
£44
£46
£48
£50
£52
£54
30
£45
£47
£49
£51
£53
£55
40
£47
£49
£51
£53
£55
£57
50
£52
£54
£56
£58
£60
£62
55
£56
£58
£60
£62
£64
£65
60
£62
£64
£65
£67
£69
£71
65
£70
£72
£73
£75
£77
£79
70
£81
£83
£85
£87
£88
£90
74
£95
£96
£98
£100
£101
£103
75
£99
£100
£102
£104
£106
£107
Table - Applying to males showing the proportion per £1,000 of pension fund for unsecured pensions and alternatively secured pensions to be used in the calculation of the basis amount (comparative annuity) drawdown quote.
These tables apply to Females only aged 23 to 74 years (age examples are shown below) for unsecured pension funds such as income drawdown and aged 75 for alternatively secured pension funds.
FTSE 15-year gilt yield: 4.57% (15 April 2008)
FEMALE tables
age now
FTSE 15-year gilt index yield
4.25%
4.50%
4.75%
5.00%
5.25%
5.50%
23
£43
£45
£47
£50
£52
£54
30
£44
£46
£48
£50
£52
£54
40
£47
£48
£50
£52
£54
£56
50
£51
£53
£55
£56
£58
£60
55
£54
£56
£58
£60
£61
£63
60
£59
£60
£62
£64
£66
£68
65
£65
£67
£68
£70
£72
£74
70
£74
£76
£77
£79
£81
£82
74
£84
£85
£87
£89
£91
£92
75
£87
£89
£90
£92
£94
£95
Table - Applying to females showing the proportion per £1,000 of pension fund for unsecured pensions and alternatively secured pensions to be used in the calculation of the basis amount (comparative annuity) drawdown quote.
These tables apply to Children only for both male and female aged 0 to 22 years (age examples are shown below) for unsecured pension funds such as income drawdown or alternatively secured pension funds.
FTSE 15-year gilt yield: 4.57% (15 April 2008)
CHILDREN tables
age now
FTSE 15-year gilt index yield
4.25%
4.50%
4.75%
5.00%
5.25%
5.50%
0
£68
£69
£71
£73
£74
£76
5
£79
£81
£82
£84
£85
£87
10
£100
£101
£103
£104
£105
£107
15
£147
£148
£150
£151
£152
£154
18
£221
£223
£224
£225
£227
£228
20
£354
£355
£357
£358
£359
£360
21
£520
£522
£523
£524
£525
£526
22
£1,019
£1,021
£1,022
£1,023
£1,024
£1,025
Table - Applying to children showing the proportion per £1,000 of pension fund for unsecured pensions and alternatively secured pensions to be used in the calculation of the basis amount (comparative annuity) drawdown quote.
The GAD tables allow a dependent child to withdraw the full amount of the fund by the time the individual reaches their 23rd birthday. However, as there is no requirement for an annual income there is flexibility for the dependent to withdraw between 0% and 120% of the basis amount allowing for a fund to remain at the age of 23. This may be beneficial if the individual is a dependent due to a physical or mental impairment and an income is required to continue for a longer period of time.
Worked example
A male individual is aged 60 on 5th May 2007 with a pension fund of £100,000 to provide an unsecured pension through income drawdown. This amount is net of the £33,333 taken as a tax free lump sum from an original fund of £133,333.
•
The reference date is designated as 5th May 2007.
•
His age in complete years at the reference date is 60.
•
The yields on FTSE 15-year gilts to consider is the preceding month on the 15th April 2007. However this is a Sunday so the working day immediately preceding this date is Friday 13th April. This yield is published in the Financial Times on Saturday 14th April. Assume for this example that the yield on this day is 4.93%.
•
Round the yield rate of 4.93% down to the nearest 0.25% which is 4.75%.
•
Use the GAD tables for a Male age 60 years and an FTSE 15-year gilt yield of 4.75% which is £65.
•
The pension fund (after tax free cash has been taken) at the reference date is £100,000.
The basis income is calculated as follows:
[£100,000 / £1,000] x £65
= 100 x £65
= £6,500
This basis income of £6,500 per annum is the comparable annuity on a standard single life, level with no guarantee basis. The maximum income that can be drawn is 120% of this figure or £7,800 per annum.
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