Many clients in receipt of income drawdown are facing an unpleasant surprise when their formal review and conversion to capped drawdown arises. Many will see a drop in permitted maximum income of up to 50%.
The industry has made calls for the return to using 120% of the GAD tables as pensioners cannot be expected to face such cutbacks. One commentator has even suggested it is a “done deal” that the Government will reverse this, it is just a question of when and cited stockmarket volatility, low interest rate outlook and declining GAD yields as reasons.
I’m not so sure. Excessive drawing of income when the fund cannot support it is precisely the reason more conservative steps were taken to avoid the premature depletion of pension savings. I recall that tax reliefs on contributions and growth on savings were always permitted on the understanding that they would provide an income for life. Advisors should have recommended to clients drawing a sustainable level of income or warned that excessive drawing or market circumstances may result in a cutback at future reviews.
I would have thought it better to adhere to the new rules rather than permit further potentially excessive drawings and the depletion of the fund to the degree that future reviews will show even worse reductions, or in the extreme the wiping out of the fund altogether.