by Peter on April 11, 2012
The insurance industry association the ABI are set to have discussions with the government over increasing the amount of money retirees can drawdown from their invested pension funds. The amount that can be taken is capped by what are known as GAD (Government Actuary’s Department) rates, which have fallen in tandem with lower annuity rates. Drawdown allows retirees to keep their pension fund invested whilst also being able to withdraw an income each year and is a popular alternative to taking an annuity. As well as falling annuity rates on the back of lower gilt yields, another factor which has pushed down GAD rates is that of increasing longevity. This has resulted in the government cutting the amount people can withdraw in income from 120% of the GAD rate down to 100% this year.
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by Peter on April 8, 2012
New research has shown that more than 50% of IFA’s are recommending to either delaying taking pension benefits or alternatively recommending clients opt for some form of phased drawdown. The poll of 1,000 financial advisers undertaken by Skandia showed that 29 per cent of IFA’s have advised customers to use other forms of savings for an income such as an ISA and to leave their pensions fund where it is, with the option of choosing drawdown in the future. In addition to this, 22% of respondents are actively recommending drawdown so as to not commit the entirety of their client’s pension fund whilst annuity rates are so low. Despite a small upturn in gilts reported earlier this month, the general trend for the past few years has been a continued fall in gilt yields which has equated into falling annuity rates. Rates have been driven down record low interest rates from the Bank of England plus the government’s own quantitative easing initiative, designed to stimulate growth in the economy. Both these factors have help to push up the price of government bonds and so lessen the yield for those insurance companies who have invested in them.
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