Transition from old to new Income Drawdown

If you are already using income drawdown before the new income drawdown rules come into force on 6 April 2011 then you will not be forced to switch to the new rule straight away. The timescales for moving to the new income drawdown rules are

• Individuals under the age of 75 may continue to draw income based on the old maximum limits until the end of their current five year review period.
• Individuals who are age 75 or older on 6 April 2011 may continue to draw income based on the old minimum and maximum limits until the start of their next annual review.
• Special rules apply to individuals who reach 75 between 22 June 2010 and 5 April 2011 inclusive.
• Individuals who wish to use the new flexible drawdown should check with their pension provider as to whether or not they support flexible drawdown.

Summary of  old rules:

• There is no requirement to draw any income.
• The maximum amount that may be drawn is 120% of the single life annuity that somebody of the same sex and age could purchase based on Government Actuary’s Department rates.
• The maximum amount will generally be reviewed every five years until age 75.

Although the maximum amount will generally be reviewed every five years until age 75, there are certain events when the maximum amount has to be reviewed earlier than this. The events in question are:

•  Part of the fund is used to buy an annuity.
• The fund is increased or reduced on pension sharing on divorce
• An income drawdown contract accepts a transfer of funds from another income drawdown contract or further funds are set aside (‘designated’) for drawdown.

An individual could have asked their pension provider to start a new five year review period (up to age 75) before their existing five year period ends. Any new five year period would start at the next anniversary date of the current five year period. The pension provider does not have to agree to this. Any new five year period had to be in place before the proposed new rules come into force on 6 April 2011

Summary of the new rules:

• There would continue to be no requirement to draw any income.
• The maximum amount that may be drawn would be reduced from 120% to 100% of the single life annuity that somebody of the same sex and age could purchase based on Government Actuary’s Department rates.
• The maximum amount will generally be reviewed every three years until age 75.
• Although the maximum amount will generally be reviewed every three years until age 75, there are certain events when the maximum amount has to be reviewed earlier than this. The events in question as detailed above.
• An individual can ask their pension provider to start a new three year review period (up to age 75) before their existing three year period ends. Any new three year period would start at the next anniversary date of the current three year period. The pension provider does not have to agree to this.

Individuals who are age 75 or older

• May continue to draw income based on the old minimum and maximum limits until the end of their current one year review period.

From 6 April 2011, income drawdown which was sometimes known as an ‘alternatively secured pension’ will be known as a ‘drawdown pension.’

The rules are as follows:

•  The minimum amount that may be drawn is 55% of the single life annuity that somebody of the same sex and age 75 (even though the individual may be older than 75) could purchase based on Government Actuary’s Department rates.
• The maximum amount that may be drawn is 90% of the single life annuity that somebody of the same sex and age 75 (even though the individual may be older than 75) could purchase based on Government Actuary’s Department rates.
• The minimum and maximum amounts will generally be reviewed every year.
•  Although the minimum and maximum amounts will generally be reviewed every year, there are certain events when the minimum and maximum amounts have to be reviewed earlier than this. These are as detailed above in the section on the current rules for individuals under 75.