The new GAD Limits Part 1
Calling this Part 1 may well prove dangerous given that there are still a few grey areas in the new drawdown rules (which we're working hard to get to the bottom of) and a sequel or two may well be necessary on this subject.
An interesting rumour which is doing the rounds is whether we are going to get an entirely new GAD table as part of all these changes rather than just a new set for those over the age of 75 as we say goodbye to ASP.
As you all know by now, maximum drawdown pension will be reducing from 120% of the GAD rate to 100% of the GAD rate. One suggestion is that there will be a whole new GAD table which will be better than the old one, so that 100% of new GAD is similar to 120% of old GAD and no-one really loses out. I haven't seen this in any HMRC announcements, but a few people have mentioned it so I'm beginning to wonder......
The HMRC guidance talks about the maximum pension changing from 120% of an equivalent annuity to 100% of an equivalent annuity. This sounds like a reduction to me, and given that annuity rates must have worsened since the current GAD table was put together, it is hard to see that what HMRC regard as "an equivalent annuity" is suddenly going to be a better rate after 6 April. So if we do get a new GAD table, there is an argument that it could actually be worse than the existing one, which means maximum drawdown reducing by even more than we were thinking. So depending on what level of investment return has been achieved clients could be in for a shock when they are affected by the new regime.
In saying that, my money's on the GAD rates staying unchanged for the time being (apart from the over 75's) but if anyone has spotted anything to the contrary, please let me know. We're learning all the time on these new rules and parts 2 and 3 will no doubt be on their way shortly...