The new GAD Limits Part 2
Regular viewers will remember Part 1 where I speculated about the possibility of a new GAD table coming out as part of all these new changes and, lo and behold, it appeared yesterday.
I stuck my neck out and say that my money was on the GAD rates staying unchanged, so it's just as well that no-one placed a bet with me on that. In my defence, I also said that if the GAD rates did change, the new table was more likely to be worse than the old one, and I've been on the money on that. Not only is the maximum drawdown pension going down from 120% to 100% of GAD, but the rates themselves will now be worse for most people.
For females there is very little change, also for males at younger ages, but for older males the effect is more significant, the older guys are living longer. At 65 the new GAD table is about 5% worse, at 75 it is nearer 8% worse.
Put another way, the combined effect of the changes for a 65 year old is that maximum drawdown pension goes down from 120% to 95%, a big reduction. Add in the fact that the calculation could be based on a lower gilt yield than previously and the reduction could be even bigger. Financially this is all sensible, preventing excessive rates of drawdown, but anyone drawing a maximum pension to maintain a lifestyle might not see it that way and could be in for a shock.
So another piece of the jigsaw falls into place. The big unknown at present is ways of extending the current 120% limit and 5 year drawdown period beyond April 2011. Mostly this is difficult but we've heard of some interesting angles on this and we're getting to the bottom of them before I report the outcome. Hopefully Part 3 of the story will follow soon, it's less than 2 months now before this all takes effect...........