2011 Income drawdown changes
The Government is making some fundamental changes to the way in which people can take their pension benefits from 6 April 2011.
One of the key changes affects unsecured pension (USP or income drawdown as it is commonly called). The maximum income allowed will be 100% of the basis amount from the GAD tables, which is down from 120% under the current rules. For those who have not yet taken their pension benefits, the impact is relatively straightforward:
- Move to drawdown before 6 April 2011 and the maximum income is calculated on 120% GAD, which will normally be reviewed after 5 years.
- Wait until after 6 April 2011 before opting for drawdown, and the maximum is based on 100% GAD, with the income being reviewed after 3 years.
This has a significant impact on flexibility - someone with a £100,000 fund moving to USP before 6 April would have a maximum income of £8,160 but this would fall to £6,800 after April*.
For those already in USP the impact is more complex. The new income limits will apply to clients over a 5 year transitional period depending on a number of factors. This leads to a number of advice issues and opportunities:
- Those not in income drawdown but considering it - move into USP before 6/4/11, maximum income calculated on 120% GAD, next review normally in 5 years (eg up to 5/4/16).
- Those already in drawdown, who have anniversary dates between now and 5/4/11 - member provokes review on anniversary date. Income re-calculated using 120% GAD with review normally after 5 years (eg up to 5/4/16). A member must request this review before the anniversary date (ie it cannot be done retrospectively). Given that the calculation of funds may take time (e.g. if invested in property), time is of the essence for anyone in this window of opportunity.
- Transfers from existing drawdown before 6 April 2011 for those who have anniversary dates between now and 5/4/11 - if existing provider doesn