The evidence is growing that many do not understand the choices and are making poor retirement income decisions:
• The Pensions and Lifetime Savings Association (PLSA) found 53 per cent of would-be drawdown investors believe it will provide a guaranteed income and one in four thought there would be no risk
• A Citizen’s Advice survey found that a third of people with funds of more than £100k were cashing them in and holding them in their bank accounts
In addition, we know people are using default glidepaths that do not match their retirement income needs. Furthermore, some drawdown investors are taking too much in income withdrawals and risk running out of money while others are taking too little and compromising their standard of living. Then there are the scenarios people often choose to ignore such as inflation, longevity and long-term care costs.
Retirement income planning can be complex; there are many risks at play, particularly for those who remain invested. Drawdown, by its very nature, becomes progressively less suitable as people get older – suitability and income levels need to be constantly reviewed against changing client circumstances and market changes.
For many, the flexibility of drawdown in the early years and security of annuities in the later years will be the most appropriate strategy. For others, continued drawdown, annuity, cash-out or a combination of the three might be the best approach. It all depends on the individual’s priorities, objectives and circumstances. The solutions are available to deliver good outcomes, but people are struggling to identify and manage the correct solution for their circumstances.
We do not need tremendous innovation in retirement income products and investments, what we need are better ways of helping people access guidance and advice so they can safely and effectively identify the retirement income solution that is best for them.
Andrew Pennie is head of pathways at Intelligent Pensions
Key Points
We have not seen the quantity of product innovation many anticipated would fill the void left by the demise of annuities.
One key innovation is a product that provides some flexibility, allowing annuity income to be paid out or switched off and retained within the tax-efficient drawdown element.
There will be more innovation in the future with deferred annuities being mooted.
