Over 55s in drawdown due a pension review in December could see their income plunge as gilts hit a record low.
Gilt yields and drawdown pension incomes are linked as the rate is the basis for government actuary calculations for retirement payments.
Yields hit a rock-bottom 2.5%- which could see over 55s losing up to 25% of their annual drawdown income.
In September, thousands of over 55s lost retirement income as the GAD rate (Government Actuary Department) dropped from 120% to 100%.
Billy Mackay, marketing director of pension provider AJ Bell, said: “For a 60 year old male with £300,000 going into drawdown on 1 December 2006 the maximum income was £22,320
“When their pension benefits are reviewed in December, even if their pension fund is still worth £300,000, they will see their maximum income drop to £16,800, almost 25% less income. If their pension fund has fallen in value the drop in pension income could be even greater.
“This drop in income will come as a shock to many especially when you consider the effect of rising inflation over the past five years, the drop in real income is far worse.
“We have urged the government to reinstate the 120% factor and to review the link between gilt yields and pension income, and will continue to press the case. We hope this latest drop in the gilt yield and the negative impact it will have on pensioners’ incomes will give them reason to look at the issue again.”
The rising cost of living is also biting in to fixed pension incomes – the latest Office of National Statistics figures for October calculates inflation at 5.0% – 3% above the government’s 2% target rate.
“We will continue to campaign on this as we believe that the government are failing to appreciate the strength of feeling on this issue. Falling pension incomes and current inflation levels are taking a heavy toll on pensioners’ lives,” said Mackay.
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