Increases in income drawdown might be pushing pensioners into higher tax brackets, SIPP specialist Hornbuckle Mitchell warned today.

The government recently increased the amount pensioners could take in drawdown with reference to the GAD rate (set by the Government Actuary Department and roughly equivalent to the income from a single level annuity). Following a reduction in April 2011 limiting to drawdown to match the GAD rate, the limit was returned to 120 per cent of the rate in March.

The move has been welcomed by pensioners hit by falling yields, but Hornbuckle Mitchell warned today that providers automatically increasing clients’ drawdown income to the new maximum could push them onto a higher tax rate.

Hornbuckle Mitchell senior technical consultant Lisa Webster said: “As a pension provider, you do not know the client’s individual circumstances so you must not assume that just because that person selected maximum income on their original benefit payment application form means they need or want all the income they can get.”

The onus, she added, was on providers to ensure clients’ incomes were suitable for their needs and to try to avoid depleting pension funds unnecessarily.

Both Standard Life and Skandia have automatically increased drawdown income rates from 100 per cent of GAD to 120 per cent for investors that chose to take the maximum amount allowed under government rules. Others, such as Legal & General is among those only doing so on receiving specific instructions.

A spokesperson for Skandia stressed that clients and advisors are notified of the change before the increase.

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