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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.
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