According to a leading pension provider, Skandia, income drawdown advice is needed for retirees as gilt yields drop. It is becoming more important that people approaching retirement should receive professional advice on how to drawdown their pension as they are more than likely to take a double hit from lower gilt yields and falling pension fund values.
They suggest that a well planned pension fund income withdrawal arrangement could increase the income a retiree can take by more than 6% in the future. Therefore suggesting that an annuity secured on the best annuity rates may not be the best pension option.
You should therefore look at alternatives to simple annuity quotes.
Gilt yields, which are used in calculating income withdrawal contracts, now stand at just 3.75%, Skandia says, the lowest they have been since income drawdown was introduced in 1995.
Many pension funds have also been hit badly by falling investment markets, leaving many people much worse off in retirement.
Skandia suggests that independent financial advisers (IFA’s) can help their clients increase their overall retirement income by keeping some pension money out of income drawdown.
There are a number of pension schemes which offer ‘additional designation’, according to Skandia, which means that any pension money transferred in withdrawal after gilt yields increase will automatically trigger a recalculation of the income levels for the entire pension fund amount.
They state that a 55-year old female with a pension fund of £100,000 would see her income increase by around 7.7% if gilt yields increase by 0.5%, while a 60-year old male would see an increase in his income of 6.7%.
Careful planning, utilising specialists such as Origen, could ensure that clients entering income drawdown now can also benefit from higher income allowances in the years ahead if interest rates and gilt yields increase to their previous levels. Worth checking out?
