This is the first increase to the GAD rate so far this year.
GAD rates are less relevant than they used to be, since the introduction of pension freedom and choices in April.
As a result of this extra flexibility, pension savers can now withdraw unlimited amounts from their pension funds from age 55, without reference to GAD rates.
However, GAD rates remain important for retirees who have opted to stick with capped drawdown, preserving their ability to make larger pension contributions.
If you continue with capped drawdown (and its GAD rate limits) rather than flexible income drawdown, your annual allowance for pension contributions stays at £40,000.
It reduces to the lower limit of £10,000 if you have taken flexible benefits which include income; such as an ‘Uncrystallised Funds Pension Lump Sum (UFPLS)’ or flexible drawdown with income.
The GAD rate for June, which is used to calculate the maximum income from capped drawdown, has increased to 2.25%.Click to tweet
Another reason we keep an eye on GAD rates is they can prove a useful indicator for pension pot owners who want to set a sustainable level of withdrawal from their funds.
If you opt for the maximum possible withdrawal level under capped drawdown, there is of course no guarantee your pension pot will last for the rest of your life.
Other factors including investment returns, fees and charges will also determine the rate of depletion.
According to some numbers crunched by the boffins at pension specialists LV=, the GAD limit increase means that the amount a 65 year old capped income drawdown investor can take from their fund is now £55 per £1,000.
This means that a 65 year old pension saver with a £100,000 fund will be able to take £8,250 a year from their pension fund if they select to take the maximum amount which is 150% of GAD.
Pensions are complex, so please do speak to us if you have any questions.