New pension drawdown limits

Zuzzie

In March I was informed by my IFA that the government are to change the rules for income drawdown on pensions. He warned me that my income would be reduced and gave me some guestimates of what it might be. However, today I have received a lengthy statement from LV showing the new income withdrawal limits on three of the amounts I currently receive. Under the new rules I am told that I can only take 100% of GAD as opposed to 120%. Does this mean that I can look forward to a 20% reduction on my drawdown income? if so why can't I apply this 20% reduction to the figures supplied. No matter what I do I can't fathom how they have reached these figures:

Current Pension drawdown limit per annum

Arrangement no. 1 : Value £11,885.06 - maximum income £1,104.35
Arrangement no. 2 : Value £15,450.65 - maximum income £1,425.54
Arrangement no. 3 : Value £18,389.90 - maximum income £1,706.76

Total max income : £4236.65

New Income withdrawal limit per annum

Arrangement no. 1 :- maximum income £701.22
Arrangement no. 2 :- maxium income £911.59
Arrangement no. 3 :- maximum income £1,085.00

Total max income : £2697.81

By my calculations I am losing £1,538.84 per annum under the new rules on these three arrangements. And, I calculate this loss as 36.32%.

There is also another issue here. I am rapidly losing faith in my IFA. When he informed me that the rules were changing I did some initial investigating of my own and was under the impression that if I called for a new reference date prior to the next which was due after April then I would be able to continue with the 120% GAD allowance for the next five years. He told me adamantly that this would not be possible but since then I have seen this repeatedly mentioned on here and on the HMRC website. Have I been ill advised???

I am not in any way pension savvy and my maths is really pants so I feel I am on a hiding to nothing with all this. Can anyone help
:eek:

noh

Current Pension drawdown limit per annum

Arrangement no. 1 : Value £11,885.06 - maximum income £1,104.35
Arrangement no. 2 : Value £15,450.65 - maximum income £1,425.54
Arrangement no. 3 : Value £18,389.90 - maximum income £1,706.76

Total max income : £4236.65

These income figures appear to be too high.
What is your current age?

dunstonh

Under the new rules I am told that I can only take 100% of GAD as opposed to 120%. Does this mean that I can look forward to a 20% reduction on my drawdown income?

You get 100% of GAD but as you will be older, the rate will be higher (generically if you assume yields remain unchanged). So, whilst it is likely you will see some reduction (if you were taking maximum) it will not be as much as 20%.

There is also another issue here. I am rapidly losing faith in my IFA. When he informed me that the rules were changing I did some initial investigating of my own and was under the impression that if I called for a new reference date prior to the next which was due after April then I would be able to continue with the 120% GAD allowance for the next five years. He told me adamantly that this would not be possible but since then I have seen this repeatedly mentioned on here and on the HMRC website. Have I been ill advised???

copied and pasted below (to save retype)

If an individual is already in drawdown their GAD limit and their five year period cannot be reset except in very limited circumstances:

Member nominated reviews – an annual review can be requested by a member (subject to the scheme administrator’s agreement) but the new limits this can only apply from the start of the next pension year. So if for example the pension years for an individual start in July there is no ability to trigger an earlier review before 6 April 2011. A small number of individuals that have a pension year starting between now and 5 April 2011 may however be able to benefit by setting a new GAD limit which will last for up to five years.

Additional designation of funds – such as phasing or paying in a further contribution to the same arrangement and then crystallising it will cause an immediate recalculation of GAD limits for the current pension year however this has no effect on the five-yearly reference period. So while an additional designation before 6 April 2011 could increase the GAD maximum it does not provide an opportunity to extend the number of years in which this amount applies.

noh

There is a calculator available here
http://www.invidion.co.uk/pension_fund_withdrawal_calculator.php

kidmugsy

"You get 100% of GAD but as you will be older, the rate will be higher." Yes, but it might be applied to a smaller sum if the capital has been withdrawn faster than it has grown.

dunstonh

kidmugsy wrote: »

"You get 100% of GAD but as you will be older, the rate will be higher." Yes, but it might be applied to a smaller sum if the capital has been withdrawn faster than it has grown.

That is always a risk if someone is overdrawing on their pension. The reduction to 100% was to prevent people overdrawing, spending it all and ending up on benefits.

Zuzzie

noh wrote: »

These income figures appear to be too high.
What is your current age?

I am a 62 year old female.

Zuzzie

dunstonh wrote: »

You get 100% of GAD but as you will be older, the rate will be higher (generically if you assume yields remain unchanged). So, whilst it is likely you will see some reduction (if you were taking maximum) it will not be as much as 20%.




copied and pasted below (to save retype)

If an individual is already in drawdown their GAD limit and their five year period cannot be reset except in very limited circumstances:

Member nominated reviews – an annual review can be requested by a member (subject to the scheme administrator’s agreement) but the new limits this can only apply from the start of the next pension year. So if for example the pension years for an individual start in July there is no ability to trigger an earlier review before 6 April 2011. A small number of individuals that have a pension year starting between now and 5 April 2011 may however be able to benefit by setting a new GAD limit which will last for up to five years.

Additional designation of funds – such as phasing or paying in a further contribution to the same arrangement and then crystallising it will cause an immediate recalculation of GAD limits for the current pension year however this has no effect on the five-yearly reference period. So while an additional designation before 6 April 2011 could increase the GAD maximum it does not provide an opportunity to extend the number of years in which this amount applies.

Oh, now I see! thanks for clarifying this - thank goodness someone can understand all the gobbledegook!

Zuzzie

dunstonh wrote: »

That is always a risk if someone is overdrawing on their pension. The reduction to 100% was to prevent people overdrawing, spending it all and ending up on benefits.

I can understand why the government wants to avoid these pensions being whittled down but my pension has performed quite well in the past and I therefore resent being told how much I can take out of my own money. There ought to be some other way of dealing with this.

noh

Zuzzie wrote: »

I am a 62 year old female.

If you put your details into the calculator I linked to above, using todays date you get the same answers as given to you for the new income withdrawal figure.

Your current withdrawal figures may have been calculated up to 5 years ago when annuity rates were higher. That plus the change from 120 to 100% will explain the greater than 20% difference. (Although the figures for your current drawdown income still appear to be too high)
You can confirm this by changing the date in the calculator to see what the rates were when you first went into drawdown.

Zuzzie

noh wrote: »

If you put your details into the calculator I linked to above, using todays date you get the same answers as given to you for the new income withdrawal figure.

Your current withdrawal figures may have been calculated up to 5 years ago when annuity rates were higher. That plus the change from 120 to 100% will explain the greater than 20% difference. (Although the figures for your current drawdown income still appear to be too high)
You can confirm this by changing the date in the calculator to see what the rates were when you first went into drawdown.

Yes, I did have a go with the calculator - and I take on board what you are saying now so I shall have another tinkle with it. thanks.