Prior to the pension legislation changes introduced in 2015, which allow individuals to ‘flexibly access benefits’, drawdown from Defined Contribution arrangements such as SIPPs and SSAS’, was provided via Capped Drawdown.
Those in Capped Drawdown are able to remain in Capped Drawdown and be subject to the associated maximum pension limit and periodical reviews; triennially prior to age 75 and annually thereafter.
The maximum pension available is calculated by considering the individual fund value, at the time of review, with the government’s drawdown tables and the corresponding gilt yield for the month in question.
Gilt yields remain low
Historically, gilt yields were up to 5.25% in the summer of 2007, but have been stuck at their minimum of 2% for over a year.
With little sign of this increasing in the short-term HMRC, published extended tables reflecting a 0% minimum in early 2017 and have now confirmed that these are to be used from 1 July 2017, with the previous 2% being minimum removed.
The impact of this, assuming gilt yields drop to nil, or near to, would be quite significant to those who rely on the maximum Capped Drawdown pension to meet expenditure.
Thankfully the legislative changes allow for those in Capped Drawdown to convert benefits to Flexi-Access Drawdown and remove the cap on the pension payable in any single pension year.
This flexibility, although a positive, can also be a hindrance and it is important that drawdown pension funds are managed so that they do not become exhausted in retirement. Because of this, advice is needed before making any change and we will consider your circumstances in full to determine whether a move to Flexi-Access Drawdown is suitable for you.
We are committed to annual reviews of drawdown arrangements, which brings an opportunity to review your personal and financial circumstances, assess fund performance and determine whether your income requirements are being met.
However, our commitment is not limited to these meetings and if you wish to discuss this change, or have any other queries, please contact your usual contact.
This article is based on our interpretation of the current law and HMRC practice, which is subject to change, and does not constitute nor is to be construed as advice. If advice is required please contact your usual consultant.
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