Wealthy pensioners – not so wealthy?

30th November 2011

The changes in the formula used to calculate draw down direct from funds is seriously impacting those who have taken the option of taking “capped drawdown” from their funds rather than taking an annuity.

The considerable drop in gilts and government bonds, which are currently at an all time low, has also triggered the reduced income that can be drawn down by an investor each year.  This has reduced annual pension sums by up to 50%.

This fall – combined with a change to the drawdown limit, from 120 per cent of an equivalent annuity to 100 per cent – has resulted in some pensioners finding that the maximum they can receive is thousands less than originally projected.

Those hit hardest are the investors which have already drawn down heavily on funds and are due to have their income limits recalculated for the next 3 years.

Many investors are having to make up for the drop in income by releasing cash from other assets when they hadn’t planned to.

Once again, this is the time to get advice. Where investors can’t afford to see their income fall, they should sacrifice some flexibility and buy an annuity.

Buying the correct annuity involves shopping around to make sure the best return is gained, but as there are many other factors that need to be considered such as state of health, marital status etc it is increasingly important that proper advice is obtained to ensure the correct annuity is purchased.

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