New investors in drawdown can from 27 March take higher levels of annual income from their pension, following changes in the Budget. A 65-year-old investor starting in drawdown with £100,000 invested will be able to take almost £1,800 more income a year than if they had started in drawdown last week. However, some investors who are already in drawdown will have to wait up to a year to take thousands of pounds more higher income.
The changes relate to the Government Actuary's Department (GAD) rate, which is based on the current month's gilt yields and sets the limit for the maximum that can be taken from a pension via drawdown.
Anyone who went into drawdown on or before 25 March 2013 will currently be limited to 100 per cent of the GAD rate. Anyone who set up drawdown on or after 26 March 2013 will currently have a maximum income limit of 120 per cent of the GAD rate. However, all these existing drawdown investors have to wait until their next policy anniversary in order to take the new maximum 150 per cent GAD rate. In some cases, this may mean that they only get access to the new higher limit just before it is scrapped altogether next April.
Also from 27 March, investors will only have to demonstrate secure pensions income of £12,000 a year (as opposed to the current £20,000) to be eligible for flexible drawdown. With flexible drawdown there is no cap on the level of the withdrawals that can be made.
However, investors who draw the maximum income run the risk of exhausting their pension fund too quickly. Many advisers recommend that you only take the 'natural yield' from the investments as income.
Maximum annual drawdown income on £100,000 pension
| Age | 100% GAD | 120% GAD | 150% GAD |
| 60 | £5,300 | £6,360 | £7,950 |
| 65 | £5,900 | £7,080 | £8,850 |
| 79 | £6,900 | £8,280 | £10,350 |
Source: Hargreaves Lansdown. Based on current month's gilt yields.
