Income drawdown should appeal to a similar audience now as before the Budget, says Stephen Lowe, group external affairs and customer insight director of Just Retirement.
Mr Lowe says: “Flexible drawdown has been with us for several years and the effect of the changes is to extend it to a wider number of retirees and, from next April, to all.”
Although it will be freely available, Mr Lowe says that does not make flexible drawdown suitable for everyone.
He argues flexible drawdown is not suitable, for example, for those who do not want to take investment performance risk, or deal with extra complexity, or seek advice, or pay extra charges on an ongoing basis.
He says: “Our view is that retirees need to think in terms of tiers of income with the state pension as a solid foundation, topped by a second tier of guaranteed pension income that is sufficient to cover their core cost of living.
“Once those tiers are in place they can position other pension assets for growth using income drawdown.
“Critical yield based on an individually-underwritten annuity remains an important benchmark – anyone with modest assets should be comparing the ‘guaranteed for life’ income that they could secure from an annuity with any alternative plan they are considering.”
Martin Lines, head of business development at Partnership, says those who are most suited to taking out a drawdown product are generally those who are happy to take a risk and do not need all of their income guaranteed for life.
He says they should be prepared to play a more active role in the management of their income and also want the option to vary their income depending on circumstances.
Stan Russell, pension expert at Prudential, says selection of income drawdown requires a ‘capacity for loss’ should longevity and volatility not go in the customer’s favour.
But David Trenner, technical director of Intelligent Pensions, says ultimately everyone should consider drawdown, although he agrees with other experts that it will not be suitable for everyone.
As people live longer, Mr Trenner says drawdown will be suitable for people up to 70 or even 75, when the mortality cross subsidy starts to have a significant effect.
For people who want guaranteed income for the rest of their lives, Mr Trenner says the answer has to be an annuity; guaranteed drawdown products are expensive and provide guarantees that folk who should be in drawdown do not need.
