At Last! Pension Income Boost As Gilt Yields Rise

Retirement income is about to get a boost for pensioners who have suffered miserably on a fixed income during recent years.

The income a pensioner can draw down from a self-managed pension increases by 5.5% from next month as the Government Actuary Department (GAD) figure goes back to 120% from the current 100%.

So a 60-year-old can take £6,360 a year for every £100,000 in their pension pot – but they have to abide by some rules. That’s a £240 per year increase for each £100,000 pension unit.

For instance, they must have at least £20,000 a year of other income so they cannot keep their pension intact and claim benefits instead.

That 60 year old moving into pension drawdown in September 2013 could have an income 15% higher than if they had started drawing down when the return was 2.00%, less than 12 months ago.

GAD rates climb

The new figures apply to retirement savers who have retained their money in a pension rather than buy a fixed rate annuity.

Anyone who has bought an annuity will stay on the same rate of income.

The GAD figure is going up in line with yield on gilts – government backed bonds.

Pensioners managing their own funds must review their investment every three-years and adjust the pay out to match the GAD rate at the time.

GAD rates fell during the credit crisis as the yields of gilts fell.

Ray Chinn, head of pensions and investments at LV=, said: “GAD rates are at the highest level since November 2011, which is good news for those approaching retirement. With annuities providing such poor returns, this is a good alternative option for many.”

Fixed pension income

Alastair Black, head of customer income solutions at Standard Life said:  “The gilt yield has gone up to 3.00% for September. This means income limits are giving a better return and this will help people who are struggling to survive on a fixed income”

Pension experts are advising retirees on drawdown to speak to their pension providers about an emergency review to see if they can shift to the higher GAD rate during the three-year fixed rate period.

Black also commented that he expected gilt yields to keep rising over the next few months, which is good news for those approaching retirement in the next 12 months.

One GAD rule to watch, though, is rates are rounded down rather than up, so although the current rate is 3.24%, pensioners in drawdown can only take 3%.

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