20th March 2013 at 4:40pm
Here’s a welcome boost for drawdown users.
The capped drawdown limit is firing up to 120%, which means 20% more available income.
The sums aren’t rocket science, either.
If you’re aged 65 with a fund of £150,000 this could see your annual income increase from £8,700 to £10,440.
But don’t expect to break the sound barrier straight away.
You may not see an immediate increase to your income. The new upper limit will be effective from your plan’s next drawdown year after 25 March 2013.
If you only recently passed your review date it could be almost 12 months before you see the benefits from that extra 20%.
Many will have seen their retirement income reduce significantly as a result of the combination of cuts to the drawdown amount in 2011 and record low annuity rates.
However, there may be a way to fuel your drawdown income even before the move to 120% limit applies.
If your last income review was at a time when annuity rates were low it may be possible to ignite your retirement income by re-calculating what you’re entitled to.
While this won’t get you access to the extra 20% any sooner, your income will be recalculated using the current annuity rates and fund value.
What’s more, annuity rates have started to rebound from their floor level of 2%.
And there’s a third piece of good news.
The FTSE is up 25% since August 2012 which means the value of your pension pot may well have gone up since your last review.
The FTSE is up 25% since August 2012
Life is unpredictable and income needs in retirement are unlikely to remain constant.
Restoring the income limit back to what it was before 2011 will allow greater freedom to adjust income throughout retirement (taking more when you need it and less when you don’t).
So, it’s onwards and upwards.
And further good news may be round the corner when we see the results of the consultation on how drawdown limits are calculated in the future.
Read more about drawdown limits on the HMRC website.
Every person’s circumstances will be different and require advice. Standard Life accepts no responsibility for advice that may be formulated on the basis of this information.