Royal London

Changes to capped drawdown tables

Fiona Hanrahan

Senior Product Insight & Technical Support Analyst

The tables used for capped drawdown maximum income calculations have been updated. We look at the reasons for the change and what the impact could be.

Changes to capped drawdown tables

Capped income drawdown involves taking a pension directly from a fund instead of buying an annuity. However, there’s a limit on the maximum amount of income that can be withdrawn during a year and this limit is reviewed on a frequent basis. Tables are used to establish the maximum income available per £1,000 of an individual’s fund.

The tables have recently been updated and from 1 July 2017, the new drawdown tables should be used for any income calculations.

Why have the tables changed?

The current tables allow for a minimum 15 year UK gilt yield of 2%. In December 2011, HMRC published a newsletter stating that if 15 year UK gilt yields were to fall below 2%, for the purposes of calculating the maximum income, a minimum of 2% should be used. In recent months the actual yield has been below 2%.

The new tables have been updated to allow for gilt yields between 0% and 2% and from 1 July 2017, the minimum of 2% will no longer apply.

Also, there are now only two tables, one for those above the age of 23 and one for those below 23. This is really just a tidying up exercise by HMRC as the male table has been also been used for females since 21 December 2012 for those over age 23. There weren’t separate male and female tables for those under age 23.

What could the impact be?

The maximum amount of income that can be taken during a 'pension year' is 150% of the Government Actuary's Department (or GAD as it's affectionately known) relevant annuity with no guarantee taken from the tables. The individual can take any level of income they like from their fund up to this maximum limit.

Let’s take an example of someone aged 65 with a fund of £100,000 and assume gilt yields are 1.5%. Under the pre 1 July basis, their maximum income would be £100,000 x ({53/1,000} x 150%) = £7,950 per year. Using the new tables, the maximum income would be £100,000 x ({50/1,000} x 150%) = £7,500 per year. This is a difference of £450 per year or a reduction of 5.66%.

In July and August 2014, the gilt yield was 3.0%. Those facing a review in the early days of the new tables could well have been expecting to use a gilt yield of 2%. They may now likely be faced with using a gilt yield of below 2%, therefore facing a greater reduction than expected in their maximum income depending on their fund’s performance.

Source1Drawdown tables

Source2 - Pension schemes newsletter 84

Source3 - Pension schemes newsletter 51

Source4 - Historic gilt yields for drawdown

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