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17 Jul 2013

Income Drawdown Reform To Provide Extra Cash To Retirees

Britons in retirement who still have their pension pots invested in the stock market are set to benefit from the new cap on withdrawals from drawdown pots, the Daily Telegraph reported. This means that a typical 65-year-old British pensioner with a £150,000 pot would have access to an additional £360 per year as of 2014.

For many retirees, income drawdown is a preferred option, rather than buying an annuity, because drawdown guarantees a fixed income for life. The option is available to people over the age of 55 and invests their pension pot in property, shares or bonds, allowing them to boost their income with successful investments. However, this also leaves them vulnerable to market crashes.

In order to prevent pensioners from spending their retirement income too fast, the government has imposed a cap on withdrawals. As of next month, the cap will be lifted by 3.5%, allowing retired people to have access to bigger amounts of money every year. The limit applies to people with a maximum of £20,000 pension income from a workplace final salary scheme and depends on the rates on gilts.

All drawdown customers have to have their income level reviewed once every three years. The Daily Telegraph added that customers who have suffered an income cut because of low gilt rates could request an emergency income review on the anniversary of their last evaluation.

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