This replaces both the existing rules for Unsecured and Alternatively Secured Pensions (USP and ASP). The maximum amount of income that can be drawn will be 100% of a comparable annuity based on revised GAD tables that will now be extended beyond age 75.
The plan and maximum income will be reviewed every 3 years up to the anniversary of entering drawdown after the 75th birthday and annually thereafter.
Transition to Capped Drawdown
The Capped Drawdown rules will apply for those who have Unsecured Pensions as at 5th April 2011 from the earlier of:
The rules also apply for those who entered ASP before 22 July 2010 from the start of the annual drawdown period in which 6 April 2011 falls. This means those currently in ASP can stop taking income if the next anniversary of entering ASP falls on or after 6 April 2011.
From 6 April 2011 if you are over 55 and have an income that meets the Minimum Income Requirement (MIR) of at least £20,000 per annum you will be able to drawdown an unlimited amount of you crystallised pension funds. The amount drawn will be treated as income for tax purposes. For more information see Flexible Drawdown.
When opting for Income Drawdown, you are able to select a specific level of annual income up to a maximum amount, which is calculated at outset and then remains in place for at least the following three years.
There is no minimum income level; you could decide to withdraw no income at all, if appropriate.
The Government Actuary's Department (GAD) calculates your maximum income amount as 100% of the notional annuity that you could secure with your pension fund, as at the date of affecting the Income Drawdown contract.
The notional annuity itself is based upon your age, size of fund and prevailing long-dated gilt yield at the time of calculation. The income level that you choose initially can be altered at any time, providing the revised amount remains within the maximum limit.
Your plan will be subject to the GAD annuity rates in force at the time your contract begins. At least every three years, your plan will be formally reviewed and your maximum level of income will be recalculated, based on your age, fund size and long-dated gilt yield applicable at the time of the recalculation. These reviews can occur more frequently if required but are mandatory at three yearly intervals.
In addition, an annual review of your plan is recommended by ourselves and supporting annual review paperwork is provided by most Income Drawdown providers.
You are able to vary (or cease) your income each year to suit your changing tax position, income requirements, or the actual performance of the underlying investment portfolio
Jonathan is the director and joint owner of the Pension Drawdown Company.