May 2008

Getting the right balance

I know that advisers and their clients have their issues with annuities but the fact remains that annuities have served millions of people's retirement needs well over the years. It is fair to say that drawdown is more flexible than annuities and offers the opportunity for clients to stay in control of their investments right up until the age of 75 - both important factors for many retirees.

However, the strength of annuities is grounded in its ability to pay a stable guaranteed income over the long term - surely also an important factor? Sales of drawdown have increased since A-Day and it is undeniably a popular product but I am interested to see what impact our recent volatile investment markets will have on this market going forward. As a result I was intrigued to see how the debate would pan out.

With Billy Burrows from MPL Wealth Management putting the case for drawdown and Prudential's Tom Boardman putting the case for annuities the debate certainly provided food for thought. At the beginning of the event the audience was asked for its opinion and came back with a 53%/47% split in favour of income drawdown. However, by the end of the debate the audience's opinion had swung back in favour of annuities well over 80% believing that drawdown would not replace annuities. The upshot of the debate was that even though drawdown does have many advantages the stability of income provided by an annuity is most important. Drawdown will provide welcome flexibility for those able and willing to stay invested in the markets post A-Day but for the vast majority of people the risk of poor market performance will be too much of a disincentive.

Of course no one product alone can provide for all of a person's retirement income needs. Burrows highlighted that for those with larger pension pots a mixture of annuities and drawdown could provide a decent solution and of course we will wait and see what impact variable annuities will have on the market.

It was an interesting debate and it is good to see alternatives such as income drawdown continuing to grow in popularity and give people choice. However, I must admit I was glad to see the final result swing in favour of annuities as they are effective products and it would be wrong to write them off.

- Helen Morrissey, Editor.

Helen Morrissey
Editor - Retirement Planner
Incisive Media