People are living longer. Baby boomers are hitting retirement. Billions of pounds sit in drawdown contracts and thousands of retirees need advice
Along with this huge opportunity come plenty of problems. Despite huge pushes to encourage more saving for retirement, annuity rates are shockingly poor. More and more retirees are asking themselves why they would want to lock in to a low rate when they could retain investment control in drawdown.
But drawdown is no simple option. Seemingly constant tinkering with the Gad rate for income has seen retirees pushed from pillar to post, moving from 120 per cent to 100 per cent and back again, seeing potentially huge drops in income throughout.
In Money Management’s inaugural drawdown survey, we take a look at more than 50 drawdown providers and ask the key questions: what do they cost? How much of their business is advised? How much income are retirees taking?
Flexible choices
The income drawdown survey was sent out to all the providers we could uncover. Of these, 59 returned the information we requested.
While most of the larger players responded, some notable absentees include Fidelity, who “could not help on this occasion”; JP Morgan, who did not wish to participate; and St James’s Place, which said it did not have the resources to complete it in the time provided.
As Table 1 shows, the vast majority of income drawdown providers come from the self-invested personal pension (Sipp) market – a natural conclusion, since Sipps offer investment control as drawdown does. But a few offer drawdown as a follow-on from a personal pension, as highlighted in the table.
The total number of drawdown customers for all providers featured is 243,439. This includes some of the bigger players, such as Standard Life (45,000 customers) and Scottish Life (33,000 customers). Drawdown assets totalled £38.9bn, an average of almost £160,000 per client.
Over the coming years, it will be possible to identify any trends in the numbers of individuals taking drawdown.
Although some natural attrition is to be expected following deaths, with longer life expectancy, people may remain in drawdown for longer and more clients may choose this route over an annuity.
Some providers have reported that drawdown sales have struggled in recent years. But, with a large amount of wealth heading towards retirement, there is every chance this will turn around.
“Drawdown sales on the whole have declined from previous years,” says Aviva.
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“There are a number of reasons for this, including investment performance, but undoubtedly lower Gad rates have contributed to drawdown being seen by some as a less attractive option than it has been previously.”
All providers offer capped drawdown, but eight do not offer flexible drawdown. This type allows the client to take as much income as they like, as long as they have a secure pension income of £20,000 from other sources. Perhaps surprisingly, some big names do not offer it, including Aviva, Legal & General, Scottish Life and Scottish Widows. Axa Wealth plans to introduce it on its Retirement Wealth Account in the near future.
