The chief executive of CTC Software, the financial services software provider, found there was a £2914 difference over time in the income taken from a pension pot worth £100,000 at retirement, assuming 5 per cent growth, depending on whether the provider calculated drawdown on a nominal or inflation-adjusted basis.
Mr Chambers pointed out that the FCA had required all contract-based pension schemes to provide inflation-adjusted illustrations from 6 April this year, but that this rule had not been extended to drawdown illustrations.
He said: “As drawdown providers can choose to illustrate on a nominal or inflation-adjusted basis, this will be highly confusing to pension holders and advisers.
“It is confusing enough moving to inflation-adjusted illustrations for contract-based pensions, but with the choice offered to drawdown providers, the difference in year-by-year income to be taken can be considerable, adding to the confusion.”
Statistics provided by Mr Chambers showed that income taken at 65 for a pension pot worth £100,000 would be £9220, according to inflation-adjusted illustrations, compared with £9450 on a nominal basis.
The difference in income would then continue at age 70, with income of £7361, compared with £8536 on a nominal basis, and £4834 at 75 years old, compared with £6343 on a nominal basis.
Adviser view
James Garman, director at Midlands-based Retirement Specialist, said: “Illustrations for both drawdown and contract-based schemes are incredibly complicated, regardless of how you present them. Our job is to explain them in simple terms, but the industry needs to find a more straightforward model for the consumer to understand.”
