Selectapension is estimating a record of £4.5bn will be transferred into drawdown products during 2018 by advisers using its platform.
The investment and planning software firm, which offers an income drawdown suite of tools, has already registered £1.5bn in funds invested into these products this year.
Drawdown used to be the preserve of wealth pensioners but since the introduction of pension freedoms in 2015 millions more pensions have been kept invested in the market rather than used to buy a fixed income with an annuity.
Selectapension tools were also introduced that year and so far more than £10bn has been transferred from defined benefit and defined contribution schemes.
Year | Total Transfer Value |
2015 | £1,670,399,769 |
2016 | £2,862,836,859 |
2017 | £4,050,217,777 |
2018 | £1,543,900,841 |
Total | £10,127,355,247 |
The value of the average transfer has also been increasing, reaching £240,526 during last year.
In 2018, the value has remained almost unchanged, at £238,256
Year | Average of Transfer Value |
2015 | £150,500 |
2016 | £189,016 |
2017 | £240,526 |
2018 | £238,256 |
Total | £204,329 |
Peter Bradshaw, director at Selectapension, told FTAdviser the high volumes seen going into income drawdown were a direct result of pension freedoms.
He said: "It was one of the unintended consequences, freeing people of being tied to an annuity.
"It was all about handing [people] control and allowing them that flexibility, but with that control comes responsibility. [Drawdown rates] need to be regularly reviewed, ideally with a financial adviser."
Mr Bradshaw said many people would exceed the 4 per cent rule for drawdown "due to their own individual and varying needs".
FTAdviser reported earlier this month advisers have warned against a "one size fits all" approach towards calculating drawdown rates.
Charles Chami, director at Glamis IFA, said the increase in pension assets being switched into drawdown products isn’t surprising, being driven by two main factors.
He said: "Firstly, the change is legislation in 2015 that introduced pension freedoms, giving people far more choice and flexibility over how they access their pensions.
"In order to take advantage of this new flexibility, people often have to switch out of older more restrictive products into newer more flexible ones.
"The second factor is demographic change, with the baby boomer generation starting to retire there are simply more people looking to access their pensions.
"We anticipate this trend will continue and we would expect to see the amount of pension switching continue to increase over the coming years."
William Burrows, retirement director at Better Retirement, said there were three dynamics driving the increase of this type of retirement products.
He said: "Drawdown is now the new default at retirement rather than annuities, many people are taking NIDs (no income drawdown) and there are more DB transfers into drawdown.
"This all makes sense in a rising market but this can change if there is a sustained period on investment volatility and annuities become more popular."
maria.espadinha@ft.com
