Peter Carter, product and marketing director at Retirement Advantage, explains the importance of tailored solutions when advising on drawdown options.
Q: What is the best way for advisers to approach conversations with clients around the various at-retirement decisions? How can they balance the traditional appeal of annuities with the benefits of flexible drawdown?
A: The key, as always, is achieving balance. In 2014, George Osborne announced that there was no need for anybody to buy an annuity again. However, the truth is people like the outcome an annuity gives them, although they may also want the benefits of a degree of flexibility.
The Retirement Account we offer provides a blend of the two, providing drawdown with the added benefit of an annuity that sits inside it. People can enjoy the flexibility of drawdown but also buy a certain amount of guaranteed income, perhaps covering their bills and living expenses and using the rest of the money as they wish. If they want to go on a round-the-world trip, they can do that.
A central part of any conversation needs to be about the client’s attitude to risk and also an assessment of how much they are prepared to lose. The adviser also needs to realistically assess how much the client needs to live on and what the base level of their financial commitments is and to make sure that is adequately covered by procuring that amount with an annuity.
Q: Recent FCA data indicates the number of people accessing their pension pots between October 2016 and March 2017 fell by 8 per cent, following a spike of 19 per cent in the preceding six months. Do these figures fit in with your experiences at Retirement Advantage?
A: I would say the figures are surprising to some degree, but it is fair to say that the market is fully developed now in terms of pension freedoms and a lot of people have already seen the opportunity to access their pension and have done so already. This has particularly been the case with people with smaller amounts, who have preferred to have the sum in cash.
Prior to the greater freedom being introduced, people typically would not consider going into drawdown if their pension pot was any smaller than £100k. Now people with a lot less – anything from £50k upwards – are going into drawdown. Now, more than ever, it is crucially important for those people to be given good advice.
Q: Why do you think combining drawdown with an annuity has proved so popular? How does it compare with simply transferring the pension value into a pure investment-based solution?
A: I think our approach has been popular among advisers and their clients because it removes a lot of the uncertainty associated with the equity markets. Quite simply, it is an approach that works well in providing stability with added flexibility.
