Major potential income boost for female retirees

31 July 2013

Retired women in income drawdown schemes could see the retirement income available to them increase by as much as 67% on this time last year, according to research by Skandia.

A combination of factors has worked in their favour.

Pension funds have benefitted from stockmarkets' strong run, with the FTSE 100 up more than 15% over the year, while gilt yields have started to rise from their historic lows.

Those market-based changes have been complemented by policy developments. Rule changes have ended gender-based pricing (which meant lower annuity rates for women because they tend to live longer than men) and, in addition, the government has boosted maximum income drawdown levels by 20%.

However, retirees may have to take action in order to feel the benefit sooner rather than later. Although income drawdown clients have regular income reviews, Skandia warns that much of the uplift to incomes due as a result of these elements may not affect many women for some time.

Uplift in income

"For women currently in a three-year statutory review period, the 20% uplift in the maximum annual income will happen automatically at the start of the next scheme income year after 26 March 2013," says a Skandia spokesperson.

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"But any uplift as a result of the other factors will not happen until a recalculation point is triggered within the pension."

That could be a statutory review – but it could be up to three years away. Skandia suggests opting for an annual review facility with their income drawdown provider.

That would mean individuals have the option of recalculation when changes have moved in their favour during the year, so they can lock in the new higher income entitlement. But there's no obligation to have a review that year if conditions have deteriorated.

Alternatively, a new recalculation point could be triggered if savers top up their drawdown fund (from an existing partially-activated pension pot, or with a new pension contribution, if they're under 75 years old).

"Activating an annual review or topping up their drawdown fund are the simplest ways for retirees in capped income withdrawal, particularly women, to benefit from these changes sooner rather than later, with no downside," says Skandia pension expert Adrian Walker.

This article was written for our sister website Money Observer

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