Using the old Government Actuary’s Department (GAD) tables can offer clients ‘a better rate potentially’, said privately owned SIPP provider AJ Bell’s marketing director Billy Mackay and urged advisers to take advantage of the rates before new rates become mandatory from June 6, 2011.
New GAD tables were introduced on April 6, the same day when new rates were announced. However, providers were given the option to carry on with the old rates till June 6.
“There have been suggestions some providers are choosing to use new tables despite the fact they can use old tables up until 6 June 2011”, said Mr. Mackay.
“I can’t understand why any provider would use the new rate as it is detrimental to the client – it is provider discretion but the old rate will give clients a better rate potentially”, he added.
The GAD tables are calculated factoring in the age of the beneficiary and gilt rates.
To calculate drawdown income, gilt yield on the 15th of every month is considered and rates are applied from the 1st of the following month.
The gilt yield had fallen by 25 basis points to 3.75 percent from 4 percent on 15th May, thus affecting return on investments.
“Historically 15-year gilt yields are at a very low level. This drives down the maximum income that people can take so there is a need for consumers and IFAs to review income and the need to take income”, said Mr. Mackay.
“This period is crucial as from now until 1 June they can still apply the old GAD tables and the old gilt rate of 4 per cent. From 1 to 6 June, they can use the old GAD tables and the lower gilt yield of 3.75 per cent but after that, the only option is to use the new GAD tables and the lower gilt yield”, he argued.
“IFAs need to be aware that gilt rates are going against the client when choosing maximum income. New tables in terms of mortality are driving incomes down and the maximum income they can take out from pension fund is less”, he explained.
The government’s latest step to reduce new GAD rates should also be questioned, he emphasised.
“I’ve worked with drawdown since 1995 when first came out and in three different businesses. I have never met a single client that has depleted their funds although some are disappointed with performance of fund”, he said.
“We are in a falling gilt yield environment, have the new GAD tables and the GAD rate has reduced income to 100 per cent. Taking account of that is there evidence for the justification of moving from the old GAD tables. I can understand the spirit of change but not the need to change”, he concluded.