Alliance Trust predicts income drawdown boom
Alliance Trust Savings, one of the country's leading SIPP providers believes that the new income drawdown rules announced on the 9th December could see a short term boom in individuals electing to go into income drawdown before the regulations change.
From April 2011, the maximum annual income that individuals under the age of 75 can draw from their pension will fall. Currently the maximum income an individual taking an unsecured pension can draw per annum is 120% of the resultant figure based on fund value, age, sex and gilt yield. From next year, individuals will only be able to take 100% of the calculated figure. Individuals will also need to recalculate their income limits every three years instead of every five years. Individuals who are already taking an income will be governed by the current rules until their next income recalculation.
A male aged 65 with a fund value of £100,000 and using a gilt yield of 4.00% currently can take a maximum income of £8,160 per annum but based on the same figures the maximum income would drop from April 2011 to £6,800. The gilt yield would need to rise to at least 6.00% before the same fund could support the maximum income available under the current rules.
Steve Latto, head of pensions at Alliance Trust Savings commented: "In recent years the income provided by annuities has been on a downward trend which has been one of the reasons for the increased popularity of income drawdown. The Government's announcement that the maximum income available via income drawdown will fall from April next year may see individuals bringing forward their decision to move into income drawdown.
"As well as securing a higher potential maximum annual income, their limit will not need to be recalculated for another five years. These two factors could result in an income drawdown boom in the first quarter of 2011. Both our Select & Full SIPP products offer maximum income flexibility including the ability to phase drawdown and or partially annuitise, giving individuals greater control on how and when they take retirement income"