Advisers should reconsider the value of guaranteed products, as perceptions of them are acting as a barrier to their use, a study published by the Lang Cat has suggested.
The report, published today (26 October) and sponsored by Aegon, defines guaranteed drawdown as guaranteed income that is linked to investment growth, and third way products as those where drawdown is mixed with either an annuity or guaranteed drawdown within the product.
The Edinburgh-based consultancy firm compared the amount of money someone would get from an annuity, guaranteed drawdown, conventional drawdown and a third way product under a variety of economic circumstances.
It modelled two scenarios looking forward over 30 years, both with an assumed pot of £100,000 and a client aged 65: one where drawdown gives more money back, and one where guaranteed income gives more money back
With the latter, and an assumed rate of growth of 7 per cent, the total money back for an annuity was £139,000, for guaranteed drawdown was £234,000, for drawdown was £322,000 and third-way products was £230,000.
With the former and an assumed growth of 3 per cent for the full 30 years and two market crashes of 15 per cent, also looking ahead 30 years, the amount gleaned for the annuity was the same, for guaranteed drawdown was £122,000, for third-way was £116,000 and for drawdown was £94,000.
Mark Polson, principal at the Lang Cat said: "Advisers dismiss these products as complex, over-engineered and expensive. It is important that advisers can navigate them. There is room for providers to think about how they can help advisers understand the mechanics of this.
"By examining different economic scenarios in which the various types of products perform best, we found that in some cases guaranteed drawdown products fare respectably.
"If you've reflexively dismissed guaranteed drawdown as too expensive, you don't get to do that anymore."
Steven Cameron, pensions director at Aegon said the provider wanted to take part in the research to do some myth-busting around costs and perception.
He said: "With the FCA also giving increased recognition to this option, we hope adviser firms will have confidence in fully integrating drawdown with guarantees into their retirement advice processes."
Looking back 25 years, the report found that with an annuity a person would have received £116,000 back, with guaranteed drawdown would have received £259,000, with drawdown would have received £336,000 and with third way would have received £226,000.
The Lang Cat report concludes that perception is much more of a barrier to guaranteed drawdown than raw cost.
It noted: "We think we've proved that with an outcome-focused approach, client needs can be well met from the range of products available now, and that includes guaranteed drawdown.
"But no adviser or client is going to use something he or she does not understand, and it shouldn't take a PhD to work out what's going on."
The report added this is a challenge marketing departments should be focusing on, and that guaranteed drawdown should form a greater part of the retirement landscape.
