The government is considering introducing imminent changes to the drawdown regime as MPs come under mounting pressure from retirees hit by cuts of up to 50% in their income.
New Model Adviser® 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.
The amount of income available through drawdown contracts has fallen for many pensioners in the past couple of years due to a reduction in gilt yields and rules limiting the Government Actuary’s Department (GAD) rate to 100% for those who could not guarantee a £20,000 annual income.
Sipp provider AJ 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 New Model Adviser® 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 be relinked from 15-year gilt yields to a mix of long-term corporate bonds and gilt yields.
A short-term fix could also be implemented, such as a temporary increase in the GAD limit for those in capped drawdown.
Adrian Boulding (pictured), 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.’
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 EU ban on gender-based annuity rates.