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Government plans reform of pension income rules

The government is debating whether to relax limits to the amount of income pensioners can draw down from their savings.


by William Robins on Nov 13, 2012 at 11:02

Government plans reform of pension income rules

The government is considering relaxing the unpopular rules that limit income pensioners can take from their savings in retirement.

A growing number of people have opted for ‘income drawdown’ when they retire to avoid locking their pension savings into the low rate of a conventional annuity.

Many of these investors have become frustrated with rules brought in by the coalition government. These allowed a small number of individuals who could guarantee they had a £20,000 income to drawdown an unlimited amount of money from the rest of their savings.

However, most people in drawdown fall below the £20,000 threshold and have to comply with a limit set by the Government Actuary’s Department.

Before the 2010 reforms took effect individuals could take 120% of the income level set by GAD. This was reduced to 100% in order to prevent investors from depleting their savings too quickly.

However, MPs have come under mounting pressure from retirees hit by cuts of up to 50% in their income as the GAD rate has tracked annuity rates downward.

Citywire understands drawdown is being ‘seriously looked at’ by 10 Downing Street and the Treasury, and a possible change in the rules could be announced in the chancellor’s autumn statement next month.

Sipp (self-invested personal pension) provider A J Bell recently renewed its campaign to return the GAD rate to the pre-2011 level of 120% for those on capped drawdown. The campaign received responses from a number of MPs voicing their concern about cuts to drawdown income, including pensions minister Steve Webb.

A source close to the situation told Citywire’s New Model Adviser® magazine the government would not sanction a return to a GAD rate of 120% because it was concerned that it would appear to be making a U-turn but was looking at a range of alternative reforms.

These reforms include proposals from the Association of British Insurers (ABI), which has recommended the GAD rate’s link to 15-year gilt (government bond) yields be replaced with a link to a mix of higher yielding long-term corporate bonds alongside gilts.

A short-term fix could also be implemented, such as a temporary increase in the GAD limit for those in capped drawdown.

Adrian Boulding, pensions strategy director at Legal & General, said: ‘I think we will see something in the short term, an increase in statutory limits and that is at the GAD’s discretion. It has to be addressed because MPs are getting mailbags full of complaints.

‘In the longer term there should be a more serious look at what those in drawdown should be investing their money in and what is a sensible level at which they should be taking money out,’ he added.

Boulding said the ABI’s proposals had been well received by the industry and in Westminster.

ABI policy adviser Rob Yuille said: ‘[The government] is well aware of the concerns. We have set out changes that can be made quickly, without changing legislation. It would just take a change in guidance. It fixes a problem. It’s an urgent situation and we will keep pushing for this.’

Andrew Roberts, chairman of the Association of Member Directed Pension Schemes, said measures could be bundled in with scheduled changes to GAD tables as a result of the European Union ban on gender-based annuity rates.

28 comments so far. Why not have your say?


Nov 13, 2012 at 11:20

AJ Bell have put together a well-researched proposal that would allow people slightly higher drawdown when younger (and probably not yet eligible for state pension) but less when older and more at risk of depleting the pot. They have also proposed allowing more flexibility for any pot in excess of £200k, which also makes a lot of sense.

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Nov 13, 2012 at 13:05

Hip Hooray for Common Sense!

I agree with sgjhaghsdg and the AJ BELL proposals make good sense.

It is wrong to force retirees into annuity purchase... far better to ring fence

part of the pension pot, and £200k is a reasonable amount for that.

Then allow far greater flexibility on any excess.

It is about time REAL incentives to save into a pension are created

Fingers Crossed...

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John Griffiths

Nov 13, 2012 at 13:23

Just so long as there is no further tinkering with the rule that if you have £20k of firm income (Pens /annuity) then you are freed from GAD limits!

Those of us who have gone that route do not wish to have that freedom undermined by more interference!

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Nov 13, 2012 at 13:58

This is indeed welcome news, and totally unexpected at this early stage.

Finally, this Government may be waking up to the fact that the majority of those who have demonstrated the financial responsibility to save into a SIPP, are capable of managing their own finances without interference from the 'nanny state'.

It is likely that those with a SIPP in drawdown, but below the current £20K income threshold, will have additional sources of income, including salary, shares, dividends, cash savings, property, etc., plus state pension/SSP if past retirement age.

I would hope that any recommendations will allow for those who can demonstrate such income to take more drawdown in the early stages. Perhaps through some form of self certification.

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Pike Bishop

Nov 13, 2012 at 14:17

Would the government kindly keep its big nose out of other peoples business, and attempt to do the job that we pay them handsomely for. Sick to death of the nanny state.

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Nov 13, 2012 at 14:53

Whatever measures the government takes it needs to ensure that it increases the income people can draw irrespective of the size of the pension pot. Not everybody has a 200k pension pot. Some people are now drawing 50% less income than they drew before the government got invloved. Will the muppet that engineered these changes on behalf of the government pleas own up?

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Nov 13, 2012 at 16:03

Calm down, they wont make any changes that require a legislation change, they cant - we would already know about it as the parliamentary time would already be booked. Then they wont make any changes that require vast IT reworking or extra compliance to function as the industry would complain too much. Finally, of course they wont make any changes that aren't tax neutral - apart from this they can make whatever changes you can suggest. I'd suggest that whatever client you have that is affected by this now will continue to be for the foreseeable future.

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Mike Kemp

Nov 13, 2012 at 16:37

They will probably change the criteria to an alternative benchmark to GAD or come up with some other actuarial formula. They would not need to introduce any new legislation if they just tinker with the benchmark or formula or both.

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Godfrey Billy

Nov 13, 2012 at 17:56

Totally agree with knoddy's statement my income has gone down by almost 62,5% redipping into savings to keep up my expenditure. The new rules are counter productive as most on income draw down will have to cut down on spending which does not help retailers. I was sensible enough to save for my pension and I think I should be sensible enough in spending my pension reasonably without resorting on government handouts.

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Nov 13, 2012 at 18:07

the drawdown allowance should be equal to 1/x, where x = the number of years until death.

hence ten years to go(say at 75 until 85) = 1/10th per annum until depletion

where people dont make it, the government wins via taking the pot and vice versa.

not a percentage; and the numer can be revised up or down depending on the return within the SIPP

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Nov 13, 2012 at 18:13

If I don't annuitise enough of my SIPP to hit the £20k, then I won't be able to drawdown enough to make use of my basic rate band. Later on, when my state pension kicks in, I'll be allowed to draw down more but this will flip me into higher rate tax.

Fortunately, our pensions will only be 45% of our post-PCLS investments, so we have plenty of options, but some people are seriously suffering right now.

However, all we can do is keep pressure on TPTB and then do our best within whatever stupid rules they impose upon us.

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Anonymous 1 needed this 'off the record'

Nov 13, 2012 at 18:20

Firstly - why limit the amount that someone who has built up a SIPP pension fund can take from that fund if they have built up a fund with the government that gets them a full Old-Age-Pension.

According to the Government the Old-Age-Pension is all they need to pay for their ongoing daily/weekly/annual needs.

So they should be able to take from their SIPP fund as they wish/need.

That is, unless the Old-Age-Pension is not sufficient!

Secondly, if you have a SIPP you will be paying a management fee, or - if managing it yourself, an Audit fee. AND another fee for having the amount allowed out of the fund as a pension calculated according to the government set GAD and associated limits.

So - if you have had your pension recalculated to the new lower limit, then any change to increase the limit will either:

Not be implemented for up to 3 years,


Require another fee to be paid.

So - for the extra 20% on the current GAD of 3000 pa (yes £600) - my SIPP is just a top-up to the OAP - I can see another £500 going out of the fund for the recalculation fee.

Thank you - Treasury and Ministers

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Nov 13, 2012 at 18:24

My SIPP is my money so why can't I manage it as I wish? HMG is afraid that having carefully assembled it over forty years I'm going to suddenly go crazy and spend it all on some high-living spree and then come back and ask them to support me. But it is HMG which has been spending our money on a crazy spree for the past fifteen years not me, so why are they fit to judge my spending habits? Annuities are now so poor (thanks to the above disaster courtesy of HMG), that I would be lucky to get back the value of my original investment if I took one out. Drawdown is the only way and HMG should let me spend and invest my money as I see fit and get out of my face.

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Archie Winterhill

Nov 13, 2012 at 18:41

Is the Gov Actuaries Dept "fit for purpose ?" - they have little touch with reality and practical issues.They seem to be a part of the treasury/inland revenue team..Perhaps they are ?.Who is their supreme commander ?

I ask because in the ' 90 's I was chairman of a Middle sized corporate pension scheme. The Inland Revenue with the backing of the GAD assessed that the Company scheme was 30% overfunded.The GAD assumptions for growth and annual return were around 9.5 % compound. We determined to close the scheme and the costs of buying out our liabilities to pensioners on the market through L&G ,Prudential etc were 12 % more than the funds available .

? Do we need a non political independent body to sort out pensions.

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Nov 13, 2012 at 18:52

According to AJ Bell, the GAD chappies decided that the 20% GAD boost had to go as their models showed that pots could be depleted, Sadly these models missed out the mandatory three year reviews.


In private companies, such a schoolboy error would have seen you out on your ear. I'm betting they are still there and still accumulating uber-generous final salary pensions.

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Nov 13, 2012 at 19:00

bravo archie..well done..i hope your get xmas cards from eveyone of those who benefited from your GAD standards that wont be from the actuaries at L&G, which I think answers the second part of your question!

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Anonymous 1 needed this 'off the record'

Nov 13, 2012 at 19:03

Certainly they are fit for purpose.

The thing is what is the purpose in the government setting up such 'bodies'

If it is to properly manage the facilities that would be expected from their title - then, like the FSA (immune to prosecution for the effect of their actions, and/or inaction), probably not.

If it is to make it look like the government is doing it's job, and to stop MP's and Ministers having to accept responsibility - then probably NO

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Anonymous 1 needed this 'off the record'

Nov 13, 2012 at 19:06

Or maybe I meant YES

Or maybe ..

Do I have to make a decision during my tenure?

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Pat Stubbs

Nov 13, 2012 at 19:52

I feel totally betrayed, having spent my working life scrimping to accumulate my pension, that I am now at the age of 62 STILL unable to retire as my pension is so inadequate due to the ridiculous withdrawal restrictions. How dare the government dictate to me how much I can withdraw. They are merely concerned that if I deplete my pot I may have to rely on benefits which are clearly needed for those of the population who have been too irresponsible to save anything at all. Why did I bother?

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Nov 13, 2012 at 20:19

Encouraging feedback on here!

Just wish more folks would shout up like this and make change happen for us all.

I am inspired to got to tonight and let my MP have my thoughts on this...and ask that he keeps the pressure on for change

It cannot do any harm can it?

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Nov 13, 2012 at 20:21

Agreed 100%. WRITE TO YOUR MP! Be as reasonable as you want or as angry as you want, just FILL their mailbags.

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Nov 14, 2012 at 00:54

It's our money and we should make sure that the Government agrees to our having much more control and much greater access to our pension pots . It should be noted that the proposals put forward to Government by the Providers and Advisers in the Pensions and Insurance Industry , including the ABI and AJ Bell , are all based on maximum annual income withdrawals , restricted because of the so-called risk of early depletion of the funds and the consequential falling back on state benefits . This is arrant nonsense as it fails to take into account other assets beyond the pension pot . The fact is that the Insurance and Pensions Industry cannot speak for the best interests of those in personal pensions , because the Industry is hopelessly conflicted by its vested interests in " feeding off " personal pension funds . The solution is for the Government to release personal pension pots into the control of the owners , subject to withdrawals being subject to the normal income tax regime . That is what we should be urging Ros Altmann , Jeff Prestridge and the Government to do , and to do so quickly . That would accelerate tax receipts and perhaps help boost the economy .

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Brian Stafford Garthwaite

Nov 14, 2012 at 09:06

LouisVW4 has good point - if one has the responsibility and foresight to arrange an independent pension plan why has the "nanny state" got to interfere with petty ruiles and regulations??

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Nov 14, 2012 at 10:16

Forthie makes a good point about boosting the economy.

There has been much debate about older members of society (in the private sector) who are compelled to continue working to try to maintain the standard of living they have worked so hard to create, supposedly at the expense of the young, because their pensions have been decimated. Also, the older we are, apparently the more affluent we are, but we aren't spending because we are so worried about the future! We also blame HMG for causing the private sector pension problems and doing nothing about it, yet bending over backwards to accommodate the public sector. Lose/Lose!

If we could take more from our SIPP, we would move into a higher tax bracket, spend more, extra VAT, create jobs... A vote winner for HMG from those who actually believe a vote is a privilege not to be wasted, and a boost to the economy... Win/Win!

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Nov 14, 2012 at 12:30

I don't think HMG would turn over income draw down pensions to the individual as they would be scared some of us would blow the lot and come begging to them for financial support.

I was just reading in the press that MPs throughout the country have been inundated with complaints about the draw down situations.

In a hastily cobbled together sop for the pensioners, there is talk of an increase 10-12% in draw down income. Well,considering a lot of people have lost 50% or more this will just fan the flames and the battle for justice will continue.

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Brian Stafford Garthwaite

Nov 14, 2012 at 13:32

Agreed Knoddy they would not want us blowing the lot!

Gordon Brown stopped pension funds reclaiming tax on dividends recived by the pension rate tax payer receving dividends incurs no further tax liability. However if the same dividends are received in pension fund and then withdrawn as income are subject to income tax?

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Nov 16, 2012 at 23:20

Your pension pot is your money. You paid tax before you put it in, you pay tax whilst it is in there and you pay when you get it back. Why on earth do they have the right to stop you using it as you see fit? It isn't compulsory at the moment to save for your retirement, so surely you have the right to blow the lot if you want to - though as Godfrey Billy says above we've been sensible enough to provide ourselves with a pension so this is unlikely.

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Anonymous 1 needed this 'off the record'

Nov 16, 2012 at 23:37

Not quite -

You would not have paid tax on what you put into the 'Pension fund' - that is the Government incentive to put money into a 'Pension Fund'

Then they will tax the money as it comes out of that 'Pension fund' - and limit what you can take out at any time as well as tax the fund - well currently the dividends on whatever you bought with that money to avoid losing due to the inflation of the £ as 'managed' by the Government.

You can avoid using the Government incentivised 'Pension fund' and create a nest-egg? fund to provide you wih a pension, using taxed money so you don't pay tax as it comes out, and you can take as much out as you like when you like ....

BUT you'll still be taxed on the money in it - capital gains tax, (well you can 'manage' that - antiques - art etc, and/or take tax free limits on an annual basis and/or tax on dividends if the 'investment vehicle pays dividends instead of just becoming more valuable

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