The combination of the recent rise in gilt yields, positive market performance, gender neutrality changes and the 20 per cent uplift in income levels announced by the UK government earlier this year can provide a substantial boost to the level of income available for female pensioners, according to Skandia.
Those taking income drawdown could see their maximum income level increase by as much as 67 per cent on the previous year.
For those clients currently in a three year statutory review period the 20 per cent uplift in the maximum annual income will happen automatically at the start of the next scheme income year following 26 March 2013. It is important, however, that women understand any uplift as a result of the other factors will not happen until a recalculation point is triggered within the pension.
A recalculation point will be triggered automatically at the next statutory review point, but for some this could be up to three years away, during which time some factors may no longer be as beneficial.
One simple and effective way for females to trigger a recalculation point is to opt for an annual review facility with their product provider, if this facility is offered within their scheme. An annual review will give them the option, but not the obligation, to have income recalculated in line with current advantageous gilt yield comparatives and the increased capital value of their drawdown fund.
This could provide a win-win situation; if circumstances improve, people can benefit from those changes sooner than waiting for their next statutory review. They can lock in the higher income entitlement for a new three year period from the start of their next scheme income year. However, if things have worsened, there is no obligation to accept a lower income level.
For those clients who started income drawdown on or after 6 April 2006 another way of triggering a recalculation point is to move more pension savings across into the drawdown fund. If all the pension savings are already held in drawdown, it could be beneficial to make a new pension contribution (if they are aged under 75). This new pension fund can then be dripped down into drawdown and a new calculation point triggered.
Adrian Walker (pictured), Skandia’s pension expert, says: “Retirees in capped income withdrawal, particularly women, have a real opportunity at the moment to plan ahead to receive more income from their pensions. The stars have aligned to a certain extent with gilt yields improving, the government changing the maximum income rules and the benefit of gender neutrality now in force. Activating an annual review or topping-up their drawdown fund are the simplest ways for females to benefit from these changes sooner rather than later, with no downside.”
