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Autumn Statement: Gov't restores 120% GAD rate for drawdown

by William Robins on Dec 05, 2012 at 13:10

Autumn Statement: Gov't restores 120% GAD rate for drawdown

The income limit on capped drawdown arrangements will be increased from 100% to 120%, restoring the 20% uplift, chancellor George Osborne has announced.

Those in capped drawdown will now be able to take income at 120% of GAD rather than 100%,

Before 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.

Only people who could secure a £20,000 annual income could drawdown an unlimited amount.

In recent months 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.

In November New Model Adviser® revealed the government was considering relaxing the GAD limits in the Autumn Statement.

44 comments so far. Why not have your say?

Simon Kershaw

Dec 05, 2012 at 13:20

Thank you for seeing sense.

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Shane Barr

Dec 05, 2012 at 13:24

he probably only did it because income tax revenue fell when the drawdown incomes were cut. he now wants the tax take back up again.

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Hickky

Dec 05, 2012 at 13:26

It will be, but when?

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Mike Morley via mobile

Dec 05, 2012 at 13:27

Obviously realised tax of 20/40% on income today better for our current financial plight than 55% some time in the future! But less cynically good that they have listened for a change.

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Paul Brown via mobile

Dec 05, 2012 at 13:40

This should not be reported as a u-turn. It should be seen as understanding for the current situation. LTA and AA reductions are very unfortunate

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Tim Page

Dec 05, 2012 at 13:41

@ Hickky: Exactly.

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James Clancy

Dec 05, 2012 at 13:41

In general if you need to take 120% should you be in draw down.

While it will be useful for retirement strategies (recycling for instance ) would the client be far better of in an annuity.

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KB

Dec 05, 2012 at 13:42

Good news but only deals with half the problem. We need a viable alternative to calculating the basis of income from drawdown so that retirees receive a decent level of income that is not determined by gilt rates.

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KB

Dec 05, 2012 at 13:44

@james clancy

Those in drawdown have seen funds rise but GAD rates reduce by 50% so at review time incomes have fallen substantially purely because of the effect of QE on gilt rates. Similar to those with high levels of cash on deposit at the Bank on which savings rates of 7%+ not so long ago, now halved at best. Should these people still be keeping money on deposit?

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Market Man

Dec 05, 2012 at 13:55

Great news that pensioners will be able to take more out of their fund annually. When combined with EIS/VCT to take out the tax liability then draw-down can really start to make sense.

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Tony36crab

Dec 05, 2012 at 14:00

James C comments that if you need to take 120%, should you be in drawdown? The key benefit of drawdown is inheritability, and the increase to 120% means that income from the fund can get closer to the growth levels that can be achieved. Too much attention is paid to annuity, income drawdown should be made available as an option to more people, such as those in final salary schemes.

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Hugh Jars

Dec 05, 2012 at 14:01

When does the reversion to 120% GAD apply from? anyone know?

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stephen latham

Dec 05, 2012 at 14:01

This decision is not a prudent one and sends out the wrong message to those advisers who have encouraged their clients to move in to drawdown a few years ago and take the maximum income. In many cases their clients would be facing reductions in income because of inappropriate advice by the advisers. It is not a given that GAD rates would be maintained and not reduced. There was an implicit duty on advisers to outline this to clients at the time and not to shift the blame blame to QE or the Government for that matter.

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JonnieB666

Dec 05, 2012 at 14:03

To quote one client "it's my money and I'm pretty damned annoyed that I cannot do what I want with it". Annuities have a part to play but some people need the additional 20% which drawdown provided. It's horses for courses. Market collapse, gilt yields plummet resulting in GAD rates plummeting and then a further 17% reduction because of a regulatory change. Talk about kicking investors when their already rolling about on the floor in agony. Those responsible for running the country (the previous lot and the current lot) should be thoroughly ashamed of the chaos they have brought on. Just because they fix a small thing like reinstating the GAD limit to 120% doesn't get them off the hook for being so stupid in the first instance!

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W K Clark

Dec 05, 2012 at 14:13

Exactly most of my clients attitude JonnieB666, Can't understand the obsession with preserving the pot unless its to pay 55% on or to pay it in to providers coffers. How is an annuity justified nowadays cos I struggle!

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Hugh Jars

Dec 05, 2012 at 14:14

@stephen latham,

It is a welcome decision for me and clients I have advised, (prudently) in taking less than the maximum income, and chose and maintained funds , which have seen their funds anything but depleted by the markets or QE....

It means they can gain back some peace of mind, and continue taking THEIR income, at a level to suit THEIR requirements..

If advisers have set maximum income levels, and funds have not performed then sadly the original advice file, and probable lack of servicing will stand or fail,.... QE or Govt interference are just hurdles we all have to jump over, not a valid excuse for poor advice

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Phil Castle

Dec 05, 2012 at 14:27

I sensible decision. Arguably however I can actually see a logic in ALL drawdown being allowed to be fleixble drawdown with the individual being able to decide what they want to do with ther OWN money provided they accept the fact they will have to pay income tax in the year of income payments. I know several people who would accept an income tax hit of 40% if that allowed them to draw their whole fund at age 55 less 40% tax.

Whilsy I can see why flexible drawdown was only allowed where income levels were 20k plus, provided the income tax is paid at 20% or even 40%, why not remove the income limit?

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Phil Castle

Dec 05, 2012 at 14:28

Oh yes, most of my clients are drawing between 80 and 100% of GAD )most 80%), but I do have some where drawing 120% for a littlwhiel made sense and some where we are using flexible drawdown too.

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JonnieB666

Dec 05, 2012 at 14:51

For the avoidance of doubt, not all clients who elected to draw the maximum income received "poor advice". They simply might have needed teh higher income and understood the risks. The problem is the government then stepped in and put the boot in further when it was unnecessary. How is any adviser supposed to prepare for that. So Mr Client, you can have a mixumum of £22,000 but I recommend you only draw £15,000 to provide for future unseen eventualities. Mr Client replies "but I need the £22,000 now" not in the future when I might not be here! It is not black and white and anyone who thinks it otherwise should question their own ability IMHO!

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Helen Shepherd

Dec 05, 2012 at 14:59

No date has been given for this increase as yet. We hope it will be announced when other Budget documents are released on 11th.

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JStevens

Dec 05, 2012 at 15:31

Indications are that legislation is required, draft legislation will be produced before the next budget, but the implementation date will depend on consultation with the industry. April 2014?

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Tellmethetruth!

Dec 05, 2012 at 23:11

#jonnieb666 I assume this same client will go cap in hand to "me and my pals the taxpayers" when he's 'spunked' his money up the wall then ? in seek of pension credits and god knows what! delighted he had the tax relief on the way in!

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W K Clark

Dec 06, 2012 at 08:41

Such a charming turn of phrase! Surely it is not beyond the wit and intelligence of someone to come up with an insured withdrawal scheme that enables a client to withdraw all their money on a underwritten life expectancy basis so that it doesn't run out.

Look at it this way, Right Mr Client you have £200,000, you want to invest for income? No problem. What I will do is give you 5% for the rest of your life, oh but when you die we keep the money thats left and no you can't ever have the capital back again.

Very simplistic but do you think many would be bought?

Many clients do not want or do not need to leave pots of their money to their children etc they would prefer to spend it, thats why they saved it! Obviously they can't be allowed to blow it and fall back on the state but arrangements can surely be worked out so they can have a higher income if they wish.

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Hugh Jars

Dec 06, 2012 at 09:09

@Tellmethetruth,

It makes me wonder what type of clients you deal with? to suspect they would go out and attempt to impregnate the nearest wall....

The people who are in drawdown are generally people with funds in excess of £100,000 , many with vastly more than that...

Doesn't that suggest to you they are the very people who are LEAST likely to 'S I U T N earest Wall '

They have made hard sacrifices during their working life typically 30 yrs plus of saving, -watching others go out and 'S I U T N Wall'

They deserve a bit more credit, - after all the higher the income they are allowed, - the more tax is gonna be paid, --filtering back into the system feeding the benefits of the population who don't pay a penny towards anything let alone pensions, but do suck life out of you and me and other taxpayers, and ' S I U T Nearest Wall, on a weekly basis.

They are the ones deserving of your vitriol, IMHO

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Tellmethetruth!

Dec 06, 2012 at 09:34

#WKclark I believe solutions like this exist, yet on these threads the innovation you seek are much maligned with expensive labels. it seems people want what you say but some of us won't let the client have the choice to pay for it....perhaps you need to do some research...

mr Jars, surely you see at little more tax now as a small advantage over the risk to state capital later of mopping up a mess. I cannot see how these people are so disadvantaged, they have had a big 25% rebate of tax relief delivered in the form of a lump sum....essentially free money. they have the choice of an annuity....not a great choice in my opinion with rates as they are, seems u fair to have to survive 20 years to get my own capital back! but they have that choice, many seek value in drawdown to eat their cake, all I ask is I am not their counterparty!!!!! perhaps if asked to sign a benefit waiver these people would think twice about stripping advanced levels of income from their funds? or are well living with our backside ins in the air because our heads are so buried with "come to me and I can get you the highest income".....I surely hope not!

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Philip Melville

Dec 06, 2012 at 09:35

What a wonderful world it would be where everyone had second sight which enabled them to live their lives according to a lifetime cashflow spread sheet coupled with a Kinder plan allied to holistic financial planning.

Or perhaps just one full of boring robots.

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peter davies

Dec 06, 2012 at 09:42

Its a great system isn't it - the amount you take from your pension fund that, for example, could be 100% invested into equities or even high yield credit is still based on gilt yields

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Philip Melville

Dec 06, 2012 at 09:54

I suppose in mitigation the idiots who are generally babbling pompous rubbish on these sites have the sense to conceal their identity and so never have to evidence their business lives..

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Hugh Jars

Dec 06, 2012 at 10:01

Tellmethetruth....

Benefit Waiver? what planet are you on?,

If I held a bit of paper in front of clients, asking them to sign it absolving tax payers of funding their destitution if/when their well runs dry, I think they would firstly P themselves laughing, drive me to the nearest asylum and then see if they could find a (more ) sane adviser.

They probably would find some in the asylum ;-)) post RDR.

Don't launch a war of words with me..I'm on your side...it was just your turn of phrase that was probably well intentioned, but just a bit wide of the mark , as you implied drawdown clients as potential future benefit blood suckers.

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Hugh Jars

Dec 06, 2012 at 10:07

@ Philip Melville,

I tried the other day (when Dominic Thomas was throwing the sames stones around) to alter my pen-name on the Citywire 'My account' details back to my real name, as I'm fed up with being accused of hiding behind a pseudonym and not taken seriously.

So, for the record,

I'm a woman and

My real name is Mary Hinge. (TAFKA Hugh Jars)

When I work out how to alter the my account details, I'll update the system, in order that you can take me seriously.

Ps, Not sure how you are currently 'Evidencing your Business Life' by putting your name against your posts. :-)) ?

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Tellmethetruth!

Dec 06, 2012 at 10:08

pompous? rich! idiots! chartered yet phil? surely you see that the gad rate is a buffer to state funding..... whether invested in equities bond property etc or sand...its irrelevant! more risk more chance of needing the state to bail you out! if that is the communication of idiots and you don't get it... well I'll leave the others to work out their own view of you....

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Tellmethetruth!

Dec 06, 2012 at 10:11

Hugh....it was the point that drawdown and its benefits come with responsibility, I agree the physical benefit waiver is ridiculous and would never happen.....but it would make us all think about more than just max gad!

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Philip Melville

Dec 06, 2012 at 10:32

No I am not Chartered or anything else other than having my Cycling Proficiency Certificate but I have lived life long enough to know that it is unpredictable at best and rarely conforms to Government or commercial expectations.

There is only one way to look after your clients and to help them to meet their expectations and that is to do it.

A brief look at the history of this industry will see that the average life of a product - pension or investment was less than 7 years - despite the products being manufactured and sold on very long maturity expectations.

Peoples lives change - hadn't you noticed ?

Hugh Jars - it is sometimes good to believe that the opinions expressed on these sites derive from real life and not theoretical course work so being able to occasionally use technology to " have a look at a bloggers real work " can help to determine whether they should be taken seriously.

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peter davies

Dec 06, 2012 at 10:33

Good point Phil Melville. In my view its quite cowardly using a made up name on these sites.

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Hugh Jars

Dec 06, 2012 at 10:35

Tellmethetruth!

I agree.... but before I yield fully, please tell me your real name, otherwise I can't take you seriously :-)

For the record- (To Posters other than your good-self) (those who seem to be influenced more by an Author's name, than the contents of the book, )

I arranged a new Drawdown contract yesterday where the current max GAD was 5%....

We mutually agreed that it would make sense to set it up on 4% income, to mitigate risk of fund depletion.

I'm not a Chartered Financial Planner, don't believe in Holistic cash flow modelling etc etc, Just a diploma -(ADFP qualifications gained many yrs before RDR arrived on the horizon) , 27 yrs experience as an adviser of the ups and downs of the FS world,...

........ but most importantly just a bit of basic common sense.

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Philip Melville

Dec 06, 2012 at 10:44

Not the name darling just the substance sitting behind the name..

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Hugh Jars

Dec 06, 2012 at 10:45

Peter, - It's not cowardly, it's a bit fun, and hugely un-important

If I have something critical to say about the FSA - and individuals there I voice it, in the full knowledge that if they want to know who I am,, the details are in my CityWire account details.......

I never aim any nasty comment at any poster, just painless crack.....and sometimes provocative stupidity...

My wife says I should get a life, -

I remind her that I decided on my pseudonym one morning when I woke up and it was the first thing that came into view....

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peter davies

Dec 06, 2012 at 10:54

Hugh Jars - I have no probs with what you say but some posts on here go rather deeper and when they do I think that the individuals should front up or shut up :)

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phil castle via mobile

Dec 06, 2012 at 11:01

hugh jarse saidshe was Mary Hing e &had a wife. cannit see her on fsa fegister. whoare you really?

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Hugh Jars

Dec 06, 2012 at 11:21

@ Phil Castle,

All will be revealed in good time-

I will be taking part on the FSCS Blog with great Alacrity as soon as they have that up and running

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Philip Melville

Dec 06, 2012 at 11:49

mindless bloody idiots.

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Markco

Dec 06, 2012 at 14:36

Legislation is required but no reason why it could not be included in the draft 2013FB in which case it could take effect 6 April 2013 (subject to enactment of the Bill).

But have to question how clients who were heavily and absolutely reliant on income from these pension funds found themselves in drawdown in the first place. Seems inconsistent with their capacity for loss.

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Phil Castle

Dec 06, 2012 at 15:06

@ Markco - Some clients wanted flexability and their capactity for loss was mitigated by opting for hybrid unsecured pensions such as The hartford's Platinum Pension plans with "Guaranteed Income" at 5% of original capital for life. The slight hiccup is that whilst the funds have remained high enough, QE has pushed max GAD below the 5% figure, so it is the government intervention which means that income may be reduced and NOT the fund value, willingness of the insurer to pay etc.

The increase in GAD back to 120% should be sufficient to enable the income to be paid that was committed to by the insurer originally I would hope.

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R Brown

Dec 06, 2012 at 19:30

I've read with interest all of the posts and I deduce most of you are not yet drawing your pensions. Some of your comments sound as though you are pension advisers etc. Thank goodness I had a sensible one. I turned 65 this year so I'm at the business end of this topic and went to see my local MP to have a moan only last week. I feel that if I had wanted 100% of an annuity rate from my draw down I would have taken an annuity. My wife and I are lucky enough to be doing the things we budgeted for when we retired like changing cars regularly skiing and cruising and the drop to 100% compromises us somewhat. Our feeling is we would like 130% of annuity rates for 3 years 110% for a further 3 years 90% for another 3 years and then a review to see how the pot was and then a final figure that should get us to life expectancy without being a burden on the rest of you. As we get older we won't have the inclination or maybe the health to do the things we need money for so we need more in the early years. I love all you money types you're clever people but try not to be so rude to each other with your glib and smart arsed comments. It's you lot that has to get us out of the mess. Love to you all.

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