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Highest Pension in Years for Income Drawdown Pensioners/ 17.8.2013• A. Velasco• Posted At 02:00 PM

money awarded for botched pension transfer

Pensioners who have chosen to keep their pension pot invested, withdrawing money slowly as income, are set to receive a 5.5% boost in the next month. This is the highest income from income drawdown that the Treasury has allowed since November 2011.

New highs

Next month, pensioners in income drawdown will be able to take out £6,360 for every £100,000 they have saved. Compared to the current limit of £6,120, this constitutes a 5.5% increase.

Income drawdown is an alternative retirement product to annuities, which many investors are looking to avoid while annuity rates stay low.

Instead of giving you pension pot to an annuity provider, who then pays out a guaranteed regular income in retirement, income drawdown customers keep their pension pot invested in the stock market.

They are allowed to take out only as much as the Government Actuary Department (GAD) allows, however, as they determine a safe rate of withdrawal. Though it’s your money, the government has instituted rules as to how much you can take each year in order to keep people from depleting their funds and running out of money while in retirement. Those who do run the risk of relying solely on the state pension or handouts from family members in order to make ends meet.

Reviews and emergency reviews

Everyone is allowed to choose income drawdown if they like, though people less than £20,000 in savings are subject to a GAD cap that is set each month. Others must review their drawdown limits every 3 years. This means that every three years you must work with an adviser or a drawdown provider to adjust your income to reflect the latest GAD rating.

However, if you have been subject to the crippling cuts to income drawdown rates in the wake of the financial crisis, you may benefit from an ‘emergency review,’ which can take place just 1 year after your last review.

This is important, as figures indicate that lowered drawdown rates in the wake of the financial crisis have cut some savers’ incomes by as much as 60 percent. Try to take advantage of the current rising income drawdown rates by scheduling a review to boost your income.

The high incomes available through income drawdown are important to consider for those who are about to enter retirement. While annuity rates remain low, all alternative options should be considered before making any decision. Speak with a financial adviser to further discuss what retirement products are right for you.

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