Income drawdown customers have option to retain 120% max income

In April last year the Government made some fundamental changes to the retirement income market, including the removal of the need to buy a secure income with a pension fund by age 75.

One of the other important changes made at the time was to reduce the maximum income limit for capped drawdown customers from 120% to 100%, because of ongoing concerns of people running out of funds.

The Government has now formally confirmed this will not be extended to flexible annuities, which will continue to be able to pay up to 120%. This is because, unlike drawdown, the customer cannot run out of money as there is a minimum income guarantee. And people benefit from mortality cross-subsidy which allows a higher income to be withdrawn without increasing the risk of depleting funds.

Andrew Tully, Pensions Technical Director, MGM Advantage commented: "The past year has seen the perfect storm of falling investment markets, improving longevity and falling gilt yields impact the income that drawdown customers can take.  Combined with the reduction in the maximum income limit this creates a stark choice for customers and their advisers at income review time.  But people do have options if they think outside of the drawdown market, including the ability to retain 120% income through flexible annuities."

Who can particularly benefit from this?

Many income drawdown customers who are approaching their review are seeing substantial falls in their maximum income. These people may want to use a flexible annuity when income falls may not be as drastic. While people may not want to constantly strip out the maximum income, flexible annuities give people the flexibility to take higher amounts when they need to.