New Income Drawdown Rules: Post April 2011
Income drawdown from pension changed on April 6th 2011. In brief the changes are:
- Two type of drawdown; a restricted version for people with income less than £20,000 per annum secured income (known as Capped Drawdown); and a flexible version for people with income in excess of £20,000 per annum (known as Flexible Drawdown)
- The maximum amount of income is reducing, it is now 100% of the single life annuity that somebody of the same sex and age could purchase. The pension provider calculates the maximum income, using standard tables prepared by the Government Actuary’s Department (GAD).
- The maximum income will be reviewed every three years until age 75 and annually from age 75, based on the Government Actuary’s Department rates for an individual of the same age at the time of each review.
- There is no minimum amount of income that must be drawn, irrespective of age. This means that individuals may be able to leave their pension fund untouched for as long as they like, without the need to draw income.
- Tax-free cash lump sums may now be paid after age 75 where an individual has elected to set aside or ‘designate’ funds for income drawdown at the same time, even if they decide to take no income.
If you are considering using income drawdown or delaying taking your tax-free cash lump sum and starting your pension after age 75 then you should check whether your pension provider is offering these options – not all pension providers offer income drawdown in which case you may need to transfer your pension to a provider that does offer income drawdown – this is likely to incur costs.
Income drawdown carries certain risks. Only specially qualified pension providers are permitted to offer advice on this subject. We strongly recommend that you seek independent financial advice from a properly qualified pensions adviser.