PensionsMay 10 2013

Drawdown said to be ‘great bridge’ into retirement

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With life expectancy figures increasing each year and annuity rates receding, Scottish Life has urged advisers to consider the flexibility of income drawdown at the beginning of retirement.

“The issue is that people are now spending much longer in retirement,” said Fiona Tait, business development manager at Scottish Life.

“Nowadays it is important to have a different approach, and yet peoples approach to retirement has not changed despite changing demographics.”

Stressing the importance of flexibility when considering retirement options, Ms Tait said a combination of income needs changing over time and the low rates currently available in the annuity market mean advisers should reconsider the available options.

“Income drawdown gives you absolute flexibility to choose your annual income before committing to an annuity in later years.

“Although there are risks involved, and it isn’t suitable for everyone, income drawdown can be useful as a flexible alternative for many people, bridging the gap until they are ready to purchase an annuity.”

Scottish Life previously launched an income planning tool for advisers that is designed to assess a client’s attitude to risk and capacity for loss.

Based on this particular tool, Alasdair Buchanan, a spokesperson for Scottish Life, said advisers must evolve with the market to recognise the long-term needs of clients.

With annuity rates currently at their lowest levels in 20 years, Mr Buchanan sees the benefits of pensioners annually withdrawing income from their pension pots until the right time comes to take out an annuity.

“Annuities may not be an attractive option at this particular time, which is why income drawdown could provide a useful bridge,” he said.