Stan Russell, senior pensions business development manager at Prudential, on why advisers need to break old patterns when it comes to advising on drawdown.

The great English moralist and poet Dr Johnson once said: “The chains of habit are too weak to be felt until they are too strong to be broken”. The retirement landscape in the UK over the past ten years or so suggests we have adopted some habits that it is time to break, or at least time to reassess, before they become bad for business and bad for clients.

When talking to advisers on a regular basis about retirement income options, the same message occurs time and again: “If my client has more than £100,000 I look at drawdown, for those with smaller pots, conventional annuities are the best bet.”

It is therefore hardly surprising that our £13bn retirement market comprises 78% invested in conventional annuities, 18% in drawdown and a mere 4% in asset-backed annuities, or third-way products. This split has remained the same for a number of years.

Beating the habit

The fact that drawdown products account for such a large proportion of the market points to a habit which needs to be broken. The recent fall in GAD rates to 2.75% – the lowest they have ever been – compounds the notion that it is now time to give serious consideration to the alternative solutions out there.

Add to the mix concerns around market volatility on drawdown funds and the effect of inflation on level conventional annuities, and the argument to break some old habits becomes even more compelling.

The options now available in the market are numerous and varied: some are designed as pseudo drawdown plans, while others are more akin to conventional annuities but with the potential to hedge against retirees’ pension pots being eroded by inflation in real-time.

What about income levels and death benefits? Traditionally, drawdown provided clients with higher income and ‘better’ death benefits than annuities.