On Wednesday, HMRC issued new Government Actuary Department (GAD) tables that are used by UK drawdown schemes and Rops providers to calculate how much income must be paid to members to ensure “an income for life”.
The amount of income payable is based on two variables; the members age and the current yield on 15-year gilt bonds of 1.75% – where the lower the yield, the lower the income.
It is the first time GAD rates, which have traditionally had a yield floor of 2%, have been updated since 2011. The new tables allow for yields as low as zero percent with a corresponding drop in income payable.
As a result, pensioners with UK drawdown or Rop schemes may face a significant drop in the amount of income they can take from their pension pot.
For example using the current gilt yield of 1.75%, anyone aged 65 to 69 will see 4% wiped off their income drawdown payments compared to the zero percent calculated under the previous 2% minimum gilt rate. (See table below)
Below is a table compiled by Isle of Man-based Boal & Co, an actuarial consultancy firm, which specialises in international pension schemes.
Boal & Co’s John Batty told International Adviser that the announcement came as surprise as gilt yields on 15-year bonds have been consistently below 2% since January 2016.
“This is important news for anyone who calculates how much a person can drawdown from their pension pots. HMRC released the new rates without prior warning or much fanfare.”
“It’s not a disaster as in a low interest rate environment pensions calculated actuarially are now more likely to produce a pension that is higher than that calculated with reference to the GAD table.
“The ability to have your pension calculated actuarially is usually available for Rops, however does of course require the services of an actuary,” he said.