Pensions  

Why drawdown could be the answer for high net worth clients

This article is part of
Income Drawdown - March 2014

The retirement landscape is changing. With life expectancy continuing to rise, more and more people are facing the prospect of how to make their money go further.

The challenge for the market lies in how best to meet the needs of the current and future generations of retirees. While some people might simply decide to work for longer to build up their pension pot, there’s a real need for customers to fully understand all their income options as they approach retirement, and to make the choice that’s right for them.

The changing retirement market

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Annuities are bought by around 400,000 people every year and for those who want the security of a guaranteed income for life, they’re often a clear choice. But for anyone looking for more flexibility in the way they take their retirement income, it’s also worth exploring other options.

As a viable alternative to buying an annuity, income drawdown is becoming an increasingly popular choice.In 2013 an additional 21,000 people opted to leave their pension pot invested and use it to take an income and tax-free payments. This is supported by the findings of Selectapension, who reported a 160% increase in financial advisers using the website’s income drawdown tools in the past two years.

While there’s no definitive drawdown customer, there are pointers in terms of suitability. These include high net worth clients with a pension pot of around £200,000, who are ready to accept a variable income and the risk associated with leaving their pension fund investment. They may well be in their early 60sand feel they are too young to buy an annuity now,or they might simply prefer to keep their options open untillater. Income drawdown can also suit clients who want to retire gradually and continue to work.

More flexibility, more tax-efficiency, more control

Most importantly, income drawdown gives clients choices, such as the option to take their tax free cash as an income and leave the remaining funds invested - or take their tax free cash as a lump sumand just use taxable income. Clients can choose from a selection of investment options for their investedfunds. And because they are not locked in for life, it’s possible to switch to another retirement income option later on.

It means advisers have the opportunity to create tailored planning strategies using the flexibility of drawdown to best advantage, working alongside other sources of retirement income includinginvestment incomes or state benefits.

The importance of advice

Aviva recommends that customers use a financial adviser when selecting their income drawdown options, as this is an important decision which shouldn’t be made without expert guidance.Given the range of options available, it’s important that customers choose the right one for their needs.

To help make recommending drawdown as simple as possible for advisers, Avivahas developed a range of useful calculators, in-depth technical guides, and video case studies demonstrating a range of scenarios.