Drawdown  

How a drawdown-annuity blend offers the best of both worlds

  • Be able to describe the outlook for the annuity market.
  • Identify some of the advantages of using a drawdown policy for clients.
  • List the tools and apps to help clients avoid running out of money in retirement.
CPD
Approx.30min

After all, we have had 13 major declines in stock markets as defined by more than 10 per cent losses in value (and five of those 13 were 20 per cent plus drops) since 1926. It would be terrible if the next decline wipes 20 per cent off your drawdown-based assets when there is no other flexible income source to turn to for lifestyle and inheritance funding, or even your day-to-day essentials. 

So, as we get older, perhaps from age 75 years onwards, advisers ought to be thinking on behalf of clients about beginning to convert a larger percentage of the remaining pot into an annuity. At that sort of age annuity rates are of course much more favourable.

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If any ill health has shown itself by then they may well be entitled to an enhanced annuity with even stronger retirement income prospects.

Remember, there is no magic age to turn the rest of the drawdown into an annuity.

A much better approach is to start with some annuity and to buy a series of further top-up tranches of annuity throughout retirement. That avoids the timing risk of switches from drawdown to annuity. And the prompts for the next slice could be to take unrealised capital gains, seize a sudden lift in annuity prices, or simply worsening blood pressure, which will improve a fully underwritten annuity quote.

Used in this way, a gradually shifting combination of annuity and drawdown provides a valuable de-risking service to the client. 

After all, in retirement it is not limiting volatility of capital values that really matters but limiting volatility of retirement income when you are most dependent on that income in later life.

Securing a stable income is the key thing to work on retaining once you leave the world of paid work behind.

Adrian Boulding is director of retirement strategy at Dunstan Thomas

CPD
Approx.30min

Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

  1. Back in 2014, the industry predicted a decline in the annuity market of how much, which was later borne out?

  2. Mr Boulding describes the annuity market as doing what?

  3. Is the following statement true or false? "Right now 49 per cent of drawdown sales are advised."

  4. According to the FCA's numbers, the average pot entering drawdown has risen to what amount?

  5. Mr Boulding suggests ideally within your client's drawdown policy there is scope to leave a target amount for what?

  6. When their clients are what age should advisers start thinking on their behalf about converting a larger percentage of their pot into an annuity?

Nearly There…

You have successfully answered all the questions correctly, well done!

You should now know…

  • Be able to describe the outlook for the annuity market.
  • Identify some of the advantages of using a drawdown policy for clients.
  • List the tools and apps to help clients avoid running out of money in retirement.

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