GAD Income Drawdown

It’s important for some drawdown scheme members to be aware of a certain figure called the GAD rate – or Government Actuary’s Department rate, to give it its full title.

That’s because GAD rates play an important role in determining how much some people can withdraw from their pension each year.

In this comprehensive guide, we explain everything you need to know about GAD rates, including what they are, who they impact, and how they may affect your retirement income.

What is the Government Actuary Department (GAD) and how does it affect pensions?

The Government Actuary Department, or GAD, determines the maximum amount a person can withdraw from their pension pot each year if they have a capped drawdown pension using something called the GAD rate.

Capped drawdown schemes were the go-to option for people who wanted to take an income from their pension without purchasing an annuity, before pension freedom rules were introduced in April 2015.

Since then, all new drawdown plans have been flexi-access pensions, which allow you to withdraw as much as you’d like from your pot, whenever you like.

Capped income drawdown pensions are no longer available. However, if you have an existing one, you can continue to use it.

What’s the GAD rate?

The GAD rate is part of a formula used to calculate the maximum amount a member of a capped drawdown scheme can withdraw from their pot each year per £1,000 of their total fund.

GAD rates are unisex and, as they’re tied to 15-year GILT yields, change monthly. Your age is also another factor, so when combined with the GILT rate gives you the GAD rate. As a result, this means GAD rates – and subsequently the amount of pension you receive – will differ for everyone depending on both of these factors.

What’s the current rate?

15-year GILT yields at the time of writing (December 2022) are 3.5%.

How it is used to calculate maximum annual income limits

To work out the maximum you can withdraw from your capped drawdown pension each year, you must first calculate your GAD rate. This figure is then uprated by 150%.

For example, based on the current 15-year GILT yields of 3.5%, the GAD rate for a 60 year-old would be £56. Once we uprate this figure by 150%, we can calculate that a 60 year-old would be able to take £84 per £1,000 held in their pension pot.

So, if he or she had a pot worth £50,000, the annual maximum would be £4,200.

Roughly speaking, the amount is 150% of the income a healthy person of the same age would get from a lifetime annuity.

Current legislation requires that maximum annual income limits must be reviewed at least every three years if you are under age 75. Once you reach age 75, maximum income must be reviewed once a year. If GAD rates rise during this time, this could boost your annual income levels. In other words, you may be able to take more out of your pot each year.

Where to look for help calculating GAD rates

HMRC publishes current GAD income drawdown tables on its website. These GAD tables are accompanied by detailed instructions.

If you need more guidance, however, we highly recommend speaking to an independent pensions advisor who’ll be able to help you to calculate the maximum you can withdraw from your pension as well as the maximum you should be withdrawing each year, based on your individual circumstances and objectives.