Why do they call it the Autumn Statement? All the leaves have long gone and its freezing outside. Anyway as usual there is some good news and some bad news. I’m going to focus on the news that is good and which most effects my clients.
Common sense has prevailed in pension drawdown cases.
The maximum that could be withdrawn from a pension contract where an annuity was not purchased has long been set at 120% of the maximum single life annuity that could otherwise have been taken. This was appropriate as the balance of the pension remained invested in real assets that had a chance of continuing to grow. The limit was reduced to only 100% and many of my clients were starting to be affected by this income decrease at reviews. It has just been stated that the limit will rise again to 120%.
Now as usual the devil will be in the detail and it remains to be seen when this will happen (hopefully immediately) and whether the limits for those aged over 75 will once again be reduced down to only 70%.
We will contact all clients that have had their incomes reduced so far to help them to receive the increased income and I will add to this blog as and when the full details are disclosed.
A quick example
Let’s say you were enjoying an income from your pension of £12000 per year originally. When the rules changed this was reduced to £10000 per year. So if everything remained equal it would take a pensioner 20% longer to spend his hard earned pension fund. Now after a massive u-turn this income will return to £12000 per year.{{1}}
[[1]] Now of course pensions are complicated things. The maximum income is calculated taking into account a few different factors.
- The size of the fund.
- The age of the pensioner. (My clients always hold up their end of the bargain by getting older between reviews.)
- The maximum percentage that can be taken (Thankfully returning to 120%)
- The annuity rate (Which is linked to the rate our government can borrow money which has fallen steadily since the last reviews. Roll on losing our AAA rating![[1]]