City Trustees - part of Mattioli Woods

News and Media

29 March 2013

Changes to capped drawdown gives clients a timely boost to income

The Government recently published the Finance Bill 2013 draft clauses, which indicated the changes to capped drawdown pensions. They will be formally ratified when the Finance Act 2013 receives Royal Assent.

With effect from 26 March 2013, the limit to the maximum capped down calculation increased from 100% to 120% of the basis amount. The basis amount is an income, calculated by using rates set by the Government Actuary's Department (GAD), current interest rates and age.

This will mean some clients can effectively take a higher level of income from their pension, depending on the start date of their current reference period. The 20% uplift will be automatically calculated and is based on a client's maximum pension details from their last official review. The uplift will apply from the start of the next pension year, which falls between 26 March 2013 and 25 March 2014.

If a client's pot is due a full scheduled five-year review between the next pension year, then an assessment will be carried out, examining the full market value of the scheme, gilt yield, member's age and GAD rates at the date of review.

If a client is currently in a five-year review period, where under the transitional provisions set by the Finance Act 2011, they have already commenced drawdown or they had their last review on or before 5 April 2011, then they will be able to take a maximum capped income of 120%.

Once this five-year review period ends, the maximum drawdown income will be recalculated for a new three year review period based on 120% of the relevant annuity rate at the time of assessment.

Caution will need to be taken for female clients whose current maximum pension benefits were calculated prior to 21 December 2012, as the new unisex annuity rates introduced by the European Court of Justice will not apply. Instead, calculations will be made via the old female GAD rates. However, women will be able to take advantage of the unisex annuity rates at their next review.

John Glover, Business Development Manager, commented: "With the fall in the gilt index yield to near record lows and the removal of the 120% uplift, many will have seen significant falls in their pension income. The return to 120% basis will give IFA clients in drawdown a timely boost to their income."


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City Trustees is a trading name of Mattioli Woods plc. For news updates on the Group, please visit our central News & Media on the Group website.