Increase in Pension Drawdown limits is announced

I often read newspaper articles or see items from the likes of Robert Peston and experience a sinking feeling, knowing that “good news is no news”!

As many of our clients may have spotted from some of the financial pages recently, however, there has been some welcome news on pensions.

It affects clients who draw income payments from their pension funds rather than opting for an annuity. They will see their income limits increased – probably from 26 March 2013 assuming there are no Parliamentary delays.

The maximum amount of drawdown income permitted was reduced by the Government in April 2011 as part of a package of pension changes (many of which were improvements) but the “perfect storm” created by this particular change, compounded by falls in both gilt yields and equity valuations meant that some drawdown pensioners have experienced painful and unexpected reductions in their income.

There has been a coordinated lobbying of the Government by pensions providers and insurance companies among others and the success that they have achieved in reversing the 2011 cut in income is very good news indeed.

The changes which reverse the cuts in income levels are intended to come into effect from the date of the next policy year however and this implies a disappointing delay for some clients -for example a client whose policy year starts on 25th March 2013 looks like having a frustrating delay of 12 months before the income can be raised whereas a client whose policy year starts the day before can enjoy the increase straight away.

It’s important not to let the best be the enemy of the good however and there is very good news for older clients with increases on the limits available for 75 – 85 year olds .They can now take 120% of the maximum allowed by the rules, an increase of up to 33%.