By Lana Clements
Retirement income is being cut by a third for pensioners with income drawdown pensions, because of rules brought in by the government last year.
Critics are calling on the government to act, as near record low gilt yields slash the income of tens of thousands of pensioners. In April last year, the government changed the maximum income available from drawdown from 120% of a comparable annuity to 100%.
The income allowed is calculated by the Government Actuary's Department (GAD) but dependent on annuity rates. These in turn rely on gilt yields, which, in the last year, have dropped to extreme lows.
Around a year ago they were at 4%, but last Friday dropped to just 2.25%, according to pensions provider A J Bell.
For example, a 65-year-old male with a pension pot of £250,000 going into drawdown in February 2011 would have had a maximum limit of £20,400, but in February of this year will have a maximum drawdown of just £13,750.
The government has pledged it will not allow GAD rates to drop below 2%. But some think the system of linking to drawdown rates to gilt yields is fundamentally flawed, and that, at the very least, the 100% cap should be restored back to 120%.
A J Bell marketing director Billy Mackay says: "The government wants to protect those who opt for drawdown instead of annuities from exhausting their pension pots but we've seen little evidence to suggest this is happening.
"The fall in gilt rates has had a drastic effect on drawdown rates and threatens to pose real and unnecessary hardship to many people who may feel justifiably aggrieved that they can't access the money they worked so hard to save."
