SIPP Drawdown Amounts vs. Age

BettySpofkins

Hi everyone, hope not many of you are stuck at work like me!

Anyway, I'm researching SIPPs and specifically drawdown. My question is, do the amounts one can withdraw change with age?

I ask because all the calculators suggest that an older person can withdraw more each year than a younger person (say, 4.1% at 55, 5.3% at 65) but is this fixed at the point of entering drawdown, or is it revised upwards each year as you grow old?

jamesd

The amount increases with age until age 85, after which age no longer changes it. It changes each year until then. To give some idea I posted a table with five year intervals that you may find helpful. The gilt yield is currently 2% and it's been announced that even if it falls lower that is the lowest value that will be used.

Women now use the rates for men. The rates in that table do not include the increase back from 100% of GAD to 120% that has been announced in the autumn 2012 statement but aren't in law yet. Once that happens they will increase by 20%.

The increase aren't automatic. They happen only when a new GAD calculation is triggered. That's normally every three years until age 75 then once a year.

The Government Actuaries Department reviews the drawdown rates every few years as well. Any changes take effect at the next review date.

BettySpofkins

Thanks, jamesd - I couldn't have wished for a clearer answer.

BettySpofkins

Having said that, there's a further gap in my understanding.

So the percentage increases with time, but is it revised to a percentage of what's left invested (in which case the actual nominal amount could fall), or of the total at the point drawdown was first entered?

Proxy

BettySpofkins wrote: »

Having said that, there's a further gap in my understanding.

So the percentage increases with time, but is it revised to a percentage of what's left invested (in which case the actual nominal amount could fall), or of the total at the point drawdown was first entered?

It's a percentage of what's left.

So if your investments underperform & you're taking out the maximum income, it is possible (and even more likely when we go back to 120%) that your income will fall.

dunstonh

So the percentage increases with time,

Theoretically it increases but the rate is subject to market conditions. Over the last 5 years you have seen the rate increase due to age but decrease due to market conditions.

Stochasticity

There are five factors that go into calculating the maximum income under capped drawdown (where these are variable, they are as at the date of the income review in question):

- Age

- Fund value (though this affects the monetary amount only, not the percentage amount)

- 15 year gilt yield on 15th of the calendar month prior (rounded down to next 0.25% increment, i.e. 2.49% becomes 2.25%)

- Corresponding GAD rate (2011 tables currently used, women now use men's rates, which are more favourable)

- Maximum percentage of GAD rate allowed (100% currently, to be increased to 120% at some point as yet unknown)


The GAD tables can be downloaded here...

http://www.hmrc.gov.uk/pensionschemes/gad-tables.htm

And 15 year gilt yields can be found here...

http://www2.skandia.co.uk/Documents/Knowledge%20Direct/Gilt_Yields.pdf

BettySpofkins

Excellent, thanks every one of you!