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Shift from annuities to drawdown continues

Annuities used to be the go-to way to secure an income in retirement, but thanks to the pension freedoms, that's no longer the case. Indeed, demand for annuities has plummeted in recent years, to be replaced by income drawdown.

Annuity apathy

Figures from the Financial Conduct Authority (FCA) show that income drawdown accounted for 76% of retirement income sales between April and June this year, with a total of 42,776 products sold during the three-month period. This compares with just 13,875 annuity sales, which represented 24% of the market.

A year previously the division was less marked, but even then the split was clear, with drawdown representing 67% of sales and annuities 33%. This marks a significant change from the same period in 2014 – prior to the pension freedoms being introduced – when the complete opposite pattern was recorded, with annuities accounting for 67% of sales (with 38,337 products sold) and drawdown for 33% (18,952).

"The data confirms the immediate and dramatic impact the pension freedoms have had on the decumulation market," commented Tom Selby, senior analyst at AJ Bell. "In 2015 annuity sales fell off a cliff in favour of income drawdown, and in the latest data for 2017 the trend is even more pronounced, with income drawdown representing three quarters of product sales."

He added that the trend was likely to continue, but even so, annuities may not disappear from the retirement income map completely: "For many people an annuity will remain the most appropriate option, at least for part of their retirement income, so it is important this market doesn't erode into extinction."

Income drawdown vs. annuities – which is right for you?

Whether you take out an annuity or would prefer income drawdown for your retirement may depend on your attitude towards risk. After all, an annuity gives you a set, guaranteed income for the rest of your days, whereas income drawdown sees your pension funds remain on the stock market, which means your income could go up as well as down, and you may indeed run out of funds altogether.

Regardless of which of these two sounds more appealing, it's always a good idea to seek advice before making any kind of decision. So, if you're nearing retirement, don't delay this key decision. Have a look at our guides on annuities and drawdown, consider talking to an annuity service to find out what your options are, and note that hybrid solutions are becoming more common – if you do your research and speak to the experts, you may find a solution that's specifically designed for you.

Source:  Moneyfacts

Sam: 27th Oct 2017 10:54:00

 

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