View the article online at http://citywire.co.uk/money/article/a572958
Gender equality ruling: another blow for men on 'drawdown' pensions
A forthcoming European Court of Justice ruling on gender equality is set to further cut incomes for men on drawdown pensions.
Those on income drawdown pensions – where you leave your pension fund invested and take an income from it rather than buying an annuity – have been hit hard by low gilt yields and a reduction in the amount of cash that can be taken.
But men could find their incomes reduced further as 'gender neutral' pricing comes into force this year.
The amount of income you can take in drawdown is linked to annuity rates set by the Government Actuary’s Department (GAD) – known as GAD rates.
These run parallel to the annuity rates being offered in the market by the companies that provide these products – so if the market rate for an annuity for a 65-year-old male with £100,000 pension pot is £6,000 then the GAD rate will be set at around £6,000.
However, drawdown income has been hit by a triple whammy of problems and changes.
Income received from annuities has fallen steadily due to the link with UK government bond, or gilt yields. A rush by investors into the safe haven of government debt, exacerbated by the government buying back its gilts under the controversial £325 billion quantitative easing (QE) programme, has pushed down gilt yields to historic lows.
Unfortunately this has meant that annuities, which traditionally invest in gilts, have provided lower incomes. The National Association of Pension Funds has estimated that QE alone has wiped £90 billion off pension pots.
As annuity rates fall, GAD rates have fallen in line with them.
A change to the amount of drawdown income you can take has also made a significant difference to retirees. Until last year those in drawdown plans were able to take up to 120% of the GAD rate as income, but this figure has been revised down to 100% as the government’s fears over people's longevity grow.
The government is concerned that as people live longer, allowing them to take more of their pension pot could see them run out of money and fall back on the state for support.
The reduction from 120% to 100% will mean a man aged 65 with a £100,000 pot will now be able to take a maximum annual income of £6,800, compared with £8,160 before the reduction.
A woman of 65 with a £100,000 pension pot will be able to take an annual income of £6,300 under the new rates, whereas she could have taken £7,560 under the old rates.
News sponsored by:
Here at BlackRock, we help investors make more out of commodities with a range of innovative, flexible and resilient investment strategies.
From Brazil and Mexico, to Vietnam and Nigeria, the rapidly developing economies of Latin American and frontier markets, which are some of the smaller, less developed economies in the world, provides investors with a wealth of potential opportunities. Discover why BlackRock's investment trust range is well placed to help you make more of these exciting regions.
In this guide to investment trusts, produced in association with Aberdeen Asset Management, we spoke to many of the leading experts in the field to find out more.
More about this:
More from us
- Retirees in drawdown pensions braced for 30% income drop
- What should I know about income drawdown?
- The truth about pensions: are your plans realistic?
- How to achieve the life you want in retirement
- What is a pension and how do I get one?
- Are invested annuities the right answer for retirees?
- ‘Toxic’ pension system deprives retirees of 30% of income
- Pension: which annuity is right for me?
- Pension: what is an annuity and how does it work?
- Women drivers: watch out! Your premiums are about to soar
- More QE: what does it mean?
Tools from Citywire Money
From the Forums
Weekly email from The Lolly
Get simple, easy ways to make more from your money. Just enter your email address below
An error occured while subscribing your email. Please try again later.
Thank you for registering for your weekly newsletter from The Lolly.
Keep an eye out for us in your inbox, and please add firstname.lastname@example.org to your safe senders list so we don't get junked.