By comparing the income available from a £100,000 pension using both a drawdown product and an investment-linked annuity, the retirement income specialist has found the annuity will pay the same income as drawdown for less investment risk, or a higher overall income, all other conditions being equal (fees/charges/investment returns).
The calculations compare a client taking income from the age of 65, 70 or 75 through to age 85 and 90. The fund remaining at age 85 or 90 is the same for both drawdown and the investment-linked annuity. As clients get older, the benefits of the annuity mortality pool become greater and therefore likely to increase incomes quite significantly from that available via income drawdown.
Andrew Tully, pensions technical director, MGM Advantage said:
“Income drawdown is now a large and relatively mature market, with many people approaching or in their 70s. As people get older, the risk increases of maintaining income, but there are options outside of drawdown. If a client wants to maintain income levels for less investment risk, or increase the income available from the pension, then investment-linked annuities can help."
"Some clients will want to retain access to their fund, even with the tax charges on death, so annuities will clearly not be for everyone. The role of the financial adviser in recognising the options and trigger points is critical in deciding the right route for drawdown clients.”
Andrew Pennie, Marketing Director, Intelligent Pensions commented:
“The risks, to advisers and their clients, of staying in drawdown for too long are very real. Drawdown exit strategies are a vital stage of retirement planning and we view ages 70-80 as the 'decade of annuitisation' for the majority. Phased annuity drawdown, using investment-linked annuities to deliver mortality subsidy, has proven an attractive drawdown exit strategy for our clients who retain an appetite for some investment risk.”
Andrew Tully concluded:
“There is a common misconception that annuities are inflexible. That does not always have to be the case. Our Flexible Income Annuity offers investment choice, the ability to vary income between 50% and 120% of the annuity income that could have been bought, and the ability to take health and lifestyle into account in determining income.”
