John Richardson, head of retirement planning at Towry, comments:
"With pension reforms hitting savers hard in recent years, Pensions Minister Steve Webb called for any future changes to acknowledge that people are living longer, and that those who are working are not saving enough to fund their retirements. Yet as we approach the next opportunity for the Chancellor to make policy changes in next week's Autumn Statement, speculation is rife there may be mixed news for those seeking to maximise the potential of their pension pot.
"The main concerns for individuals are the possibility of further changes to the annual allowance and changes to drawdown limits. Both of these have been cut substantially in the past few years. The Bank of England's policy of quantitative easing has not helped gilt yields, with rates falling consistently since the beginning of the financial crisis in 2008. 15-year gilt yields, which determine the level of maximum income that can be taken through drawdown, hit a record low earlier this year, which led to a further cut in the drawdown limit. This, together with general poor investment performance and a capping in the maximum income that an individual may withdraw to 100 per cent of the equivalent annuity (from a previous level of 120%), has created a good deal of bad news.
"Recent political pressure has put drawdown limits under the spotlight again. However, this time, there could be some good news on the way. A 60 year old man with a pension pot of £100,000 can currently take a maximum annual income through drawdown of just £4,600 - a 41 per cent drop from the £7,800 he could take five years ago. But there have been suggestions that the old rate of 120% could be restored and that enhanced drawdown rates could be introduced for people who qualify for enhanced annuities. Enhanced payments are usually available to people who have a decreased life expectancy due to ill health.
"Less positive news may come in the form of a reduction in the annual allowance. Currently each year you can save a maximum of £50,000 into your pension pot, this rate being recently cut from its previous £255,000 level. Yet there is plenty of noise to suggest the annual allowance may be cut again to £40,000 or even £30,000 as the Chancellor looks to make further inroads into the UK deficit.
"With recent changes to the industry impacting negatively on pension savers, and annuities currently offering greater potential income than through income drawdown, there is a ‘perfect storm' creating great uncertainty over pensions. The need for real innovation to help individuals realise the potential value of their pension savings has never been greater."
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