The popularity of Income Drawdown, one of the ways in which retirees can withdraw money from their pension, has fallen back significantly over the past year.
Income Drawdown allows retirees to take money directly from their pension fund, whilst leaving the capital invested and has previously been popular amongst people who do not want to use their pension to buy an Annuity.
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However, new figures from the Association of British Insurers (ABI) show that the number of Income Drawdown plans taken out in 2011 was down by 40% on 2010, with the trend continuing downwards into 2012.
In 2010 30,000 Income Drawdown plans were taken out, this dropped sharply to 18,000 in 2011.
Why has Income Drawdown become less popular ?
The fall in popularity of Income Drawdown as a way of creating an income from a pension seems to be down to two key factors.
Firstly the amount of income which can be generated from such plans has fallen over recent years due to lower gilt yields, which have also affected Annuity rates.
The government also made a change, reducing the maximum income available from Income Drawdown plans.
Secondly, many retirees have been put off Income Drawdown due to the volatile nature of the world’s stock markets over recent years. Income Drawdown plans usually have, although this doesn’t have to be the case, a large proposition of their assets invested in stocks and shares. Since the financial crisis investors have become increasingly nervous of such investments, often preferring the security of an Annuity.
Annuity sales
Additional figures from the ABI showed that Annuity sales have held up far better, with a smaller reduction, down from 426,000 in 2010 to 400,000 in 2011.
The smaller reduction comes in spite of Annuity rates tumbling to their lowest ever levels.
Any pension Annuity calculator will show just how far rates have fallen, despite this, it seems that would-be retirees prefer this guaranteed option and moving away from alternatives, such as Income Drawdown.
Our team of Independent Financial Advisers in Nottingham are experienced in developing retirement income strategies for clients the length and breadth of the UK. If you are approaching retirement and would like advice on your options call one of our IFAs today on 0115 933 8433, alternatively enquire online or email info@investmentsense.co.uk
