“This contrasts with Gad rates that are based on average life expectancy.”
However, as Andrew Tulley at MGM Advantage points out, drawdown is not a pooled concept – the individual risk of allowing greater withdrawals would be far higher for the individual in drawdown than the insurance company offering enhanced annuities.
Tale of two halves
Much of the debate on the maximum Gad rate centred around those taking the greatest income possible. But the idea that the majority of retirees draw the maximum is a myth.
Table 4 shows the percentage of income drawn by advised customers; where the majority of business is non-advised or the data cannot be split, this information is shown instead.
The figures show an interesting pattern: the majority of drawdown clients take the most or the least available. On average, 52 per cent of clients draw no income and 28 per cent draw between 100 and 120 per cent.
The information in the Table covers business as a whole, but it is possible to look a little further at flexible drawdown with data from HMRC. As shown in Graph 1, of the 1,705 individuals using flexible drawdown in the tax year to 5 April 2012, the vast majority – 82 per cent – drew less than £50,000 in income.
Graph 2 breaks this down even further, looking at withdrawals below £100,000. Lower amounts of income are far more popular, with 632 individuals drawing less than £10,000.
Flexible drawdown is only accessible to individuals who meet certain conditions, but can be effective as part of an overall retirement planning strategy. And, having had time to bed in, it has now established a place in the market.
“Flexible drawdown is now getting recognition from those who can meet the minimum income requirement as a serious tax – and estate – planning vehicle, far removed from the ‘take the money and run’ approach which was feared by some commentators at outset,” says Ray Chinn, head of pensions and investments at LV=.
Adding value
Providers are often at pains to emphasise that drawdown should be an advised event. While sophisticated investors will undoubtedly be able to go it alone, for the vast majority of individuals in drawdown, obtaining professional advice throughout retirement is a must.
Table 5 shows the breakdown of advised versus non-advised drawdown business. As shown in the Table, the majority of business for most providers is advised. Of the 49 providers that submitted data, more than half of business is advised for 94 per cent of providers.
Advisers can add value in a number of ways. Selecting the right amount for drawdown – whether in capped or on an ongoing basis for flexible – is key to maintaining a fund throughout retirement. As outlined above, much focus is placed on those taking the maximum, but this is actually not the case for the majority.
