With lower gilt yields being experienced HM Revenue & Customs (HMRC) have been prompted to reissue tables used for calculating maximum annual withdrawals from income drawdown plans.
Current tables show a range of gilt yields from 3-8%. For adults, a 15 year gilt yield is used, and for February 2009 this is 3.75%, having fallen from 4.75% in January last year.
These yields are used to determine the maximum annual withdrawal that is permitted from an income drawdown plan. At last January’s adult gilt yield of 4.75%, a 60 year old man with a £100,000 pension fund could take an income of around £7,800. Today, a 60 year old man with a £100,000 pension fund is more likely to receive an income closer to £7,080.
What all this means for you is that lower maximum incomes can now be taken from income drawdown plans than previously the case, meaning that annuity quotes should be considered again. Perhaps the best annuity rates on offer is a better solution.
Rates are also provided for dependants under 23 who inherit an income drawdown fund and, due to the shorter expected nature of dependants’ pensions for children, the yield used is a five year gilt yield.
The move by HMRC comes as increasing numbers of retirees make use of flexible income drawdown products to bolster their retirement income amid the climate of lower gilt yields, according to leading pension and annuity provider, Standard Life.
John Lawson, their head of pensions policy, stated that people looking to obtain higher levels of retirement income should consider flexible ‘drip-feed’ drawdown, where the income is taken as a combination of tax-free cash and taxable income.
If you are considering something as complex as this use a specialist such as Origen to guide you through the detail.