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Pension advice for Silhillians

FOLLOWING an announcement last week, those looking to take their income from private pension arrangements in the next few weeks may be best to wait until after March 26 if they were considering the income drawdown route.

FOLLOWING an announcement last week, those looking to take their income from private pension arrangements in the next few weeks may be best to wait until after March 26 if they were considering the income drawdown route.

Unlike conventional annuity contracts where a pension policyholder would make a number of selections and then typically fix their income for the rest of their lives, income drawdown allows the pension fund to remain invested, potentially right up to the point of death and each year draw a sum of income as they choose, but within certain limits.

These income limits are set by the Government Actuarial Department and are known as the GAD limits. Having taken any tax free cash required, the remaining fund has a ‘rate per £1,000’ set against it which is largely based on age and the current 15 year gilt yield level.

During the past few years with dramatically falling gilt yields income from this type of pension has reduced.

Combined with a change in legislation in April 2011 which reduced the maximum that could be taken from 120 per cent of GAD to 100 per cent, income drawdown policyholders had reductions following the statutory periodic reviews.

As you can imagine, there was some strong lobbying of Government to reverse the reduction in maximum income level and this is now due to come into force from March 26, essentially increasing again the income to 120 per cent of GAD.

Those who already have a fixed income for life of more than £20,000 can utilise the flexibility of a variation of the drawdown plan, but for most pension policyholders the ability to vary income as their circumstances and tax position demand potentially provide greater death benefits for their beneficiaries and continue to invest past age 75 the latest increase in annual income will be most welcome.

l Dominic O’Brien is a Director of Jamieson Christie Wealth Management Ltd. Please remember that the information given is for informational purposes only and is not intended to give or imply advice of any kind. Limits, terms and conditions may apply to one or more of the areas mentioned above. The value of investments and any income from them may fall as well as rise and you may not get back what you invested. The above is based on our understanding of the regulatory position as at January 2013.

 

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