Phased drawdown with an annuity is the preferred choice for advisers whose clients are looking for income in retirement, a white paper from iPipeline has claimed.
In a six-page publication, The Future of Annuities in the UK, the technology provider revealed a 40 per cent reduction in annuity quote volumes, which it claimed signified an unknown landscape, but one that was diversified in terms of options for pensioners.
The report said advisers believed there would be demand for drawdown from those with smaller pots, and that demand for annuities could come from clients with larger pots.
It claimed: “Annuities will continue to play a key role in retirement, though it will no longer be the default position, but will form one of the key options at retirement.”
The report said that many advisers felt product providers would introduce alternative products with greater flexibility and keener pricing. Some expressed concern that those approaching retirement would expect free advice.
Looking at the challenge of advising on a greater range of options, the report said there would be an increase in demand for fully regulated advice, making their work across the range of products essential.
“Technology systems will play an important part in assisting the adviser with clients’ retirement planning efficiently and compliantly. Where the most likely outcome for the mass market was previously annuities, the adviser now has the ability to explore the alternative options,” the report said.
This came as the Government Actuaries Department confirmed that the rate for capped drawdown for May was 2 per cent. Ray Chinn, head of investment and pensions for LV=, said: “Following the advent of flexible access drawdown, the GAD rate no longer determines the maximum income savers can take from their pension.
“Some advisers and customers may still see GAD as a useful measure to avoid a rapid depletion of pension funds.
“With pension savers now having greater choice as to how they take an income from their pot, we would always encourage pensioners to consider all the options available to ensure they make the most of their savings.”
What the 2% GAD rate means
The amount a 65-year-old income drawdown client can take from his fund will be £53 for every £1,000.
A 65-year-old client with a £100,000 fund can take £7,950 from his pension fund.
Laurence Sanderson, financial consultant at Essex-based Sterling and Law, said: “Annuities can still be right for some however the recent announcement that annuity rates were currently at the lowest level does not bode well. I cannot see it improving with interest rates where they are.
“The problem with face-to-face advice is that it must be economically viable for both advisers and clients. For people with small pots, other than face-to-face advice would make sense. Ironically those with smaller pots are the very ones that need advice, especially those on means-tested benefits.”