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Pension income takes double hit from September

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Pensioners in drawdown who are facing their five-year review in September could be in for a shock. A combination of falling markets, falling gilt yields and Government reforms could see the income they have been drawing for the past five years halved.

The pension income available via Capped Drawdown is limited by Government Actuary Department (GAD) rates. The GAD rates are linked to 15-year gilt yields, which dropped to below 3.5 per cent last week for only the second time since April 2006. A 1 per cent gilt yield reduction could result in a 10 per cent reduction in income for a 70 year old male. This is compounded by Government reforms brought in in April this year which reduced the income available via Capped Drawdown from 120 per cent of GAD rates to 100 per cent, a significant drop which will come into effect at the five-year review.

Add to this the possibility that pensioners with part of their fund still invested may have seen the value of their pension reduced by the recent market dip and it becomes clear that many could see a significant drop in the income they are currently drawing.

One option that could potentially increase levels of income is Scheme Pension. Allowable income via Scheme Pension is not based on set GAD rates, but on a bespoke calculation made by an actuary, who will consider an individual's health as well as their age. Scheme Pension could be an attractive option for those facing a substantial reduction in income at their five-year review, however it is only available through a limited number of pension schemes. One such scheme that offers Scheme Pension in addition to significant flexibility is The Pointon York Family Trust. Individuals will need to take financial advice as Scheme Pension is a complex area of tax and retirement planning that can come with high fees and may not be suitable for everyone. Read more about The Family Trust and Scheme Pension

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SOURCE: http://www.investorschronicle.co.uk/Columnists/PersonalFinance/article/20110816/7ad4ab4c-c7eb-11e0-bdcf-00144f2af8e8/Income-plight-of-pensioners-in-drawdown.jsp

 

Important Information:

Pointon York SIPP Solutions Limited does not give advice, and this article should not be construed as advice. Before making any financial decision we strongly recommend that you seek financial advice and ensure you understand the risks of your decision. To find an adviser in your local area visit www.unbiased.co.uk, an independent search website.

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