Flexibility driving popularity of drawdown – Skandia

A third of advisers think pension income drawdown is an “appropriate choice” for retirees, according to new findings from Skandia.

In a Skandia survey of over 600 financial advisers, 33% think the main reason people choose income drawdown is a reluctance to give money to a life company via an annuity.

The second and third most cited reasons people opt for income drawdown are the ability to opt for zero income (27%), followed by the flexibility to change income level (24%).

A further 16% of advisers say the desire to maintain control of investment strategy is the primary reason retirees choose drawdown.

"The results show it is the flexibility and control that income drawdown gives people over their retirement income that is driving the popularity of income drawdown with only a small minority saying inheritance tax planning is the primary motivator," says the wrap platform.

Skandia's survey also reveals retirees opt for varying levels of income, with nearly a third choosing no income and a fifth taking maximum income. This suggests a tailoring of income in line with individual needs.

The findings also suggest people are not wholly dependent on income drawdown to fund retirement, with many receiving income from different sources. These include other investments such as ISAs, bonds and savings (49%), annuities (20%), final salary schemes (17%) and buy-to-let property (14%). Less than 10% rely on income withdrawn for all of their retirement income, say advisers.

Finally, nearly 70% of advisers say clients did not generally change income levels in response to the turbulent economic conditions over the past year.

Skandia head of proposition marketing Peter Jordan says income drawdown can provide an appropriate alternative to an annuity because of the greater flexibility enabling people to plan for the best outcome.

But he also warns it is important retirees understand the risks involved.

"The outcome of income drawdown fundamentally depends on the performance of the underlying investments, as well as the level of income taken from the fund, so the investment strategy and level of income should be reviewed regularly to ensure it continues to deliver against expectations," he says.