Capped Pension Drawdown and QROPS pensioners - falling income

Many pension companies and QROPS providers are warning pensioners in capped pension drawdown of potential drops in retirement income. The reasons are:
•Recent investment losses for those holding asset backed investments such as equities.
•Falling gilt yields are affecting the amount that can be drawn from a fund,
•Capped pension drawdown rules post April 2011 reducing maximum drawdown from 120% of the Government Actuary's Department (GAD) rate to 100%.

For those with QROPS and still not non UK resident for more than five complete UK tax years will still see the influence of UK pension legislative changes.

April 2006 saw the yields used in calculating maximum income as high as 5.25% and only once fell below 3.5% to 3.25% in April 2009. Recent sentiment and global economics have led investors to flock to safe havens as the equity markets plummeted. Yields on 15-year-gilts fell to 3.25% in September.

An example for a 70-year-old male, a reduction of just 1% in gilt yield reduces income by 10%. Gilt yields are currently 2.75% so people with reviews in the autumn or those taking benefits for the first time will bring down the maximum retirement income that the member can take from their pension funds each year.

Those needing advice will be pensioners in pension drawdown or QROPS for some time and taking maximum income. Changes to GAD rates, gilt yields, together with poor investment returns mean that those who started taking income five years ago have already seen incomes reduced substantially.