LONDON- Most financial advisers say that annuities are "failing consumers" and the nation's lack of faith in them will see more and more people turn to alternative "drawdown" income to fund their retirement. After years of retirees being offered miserly returns on their pensions by annuity providers, a survey of almost 700 financial advisers has revealed they too have grown disillusioned with the retirement products. Rather than handing over pensions to insurance companies in return for a guaranteed annuity income, 89 per cent of advisers that were questioned told Skandia that they think income drawdown will increase in importance as an alternative to annuities.

 

Adrian Walker, pension’s expert at Skandia, said: "How today's workforce is transitioning into retirement is changing. People are living longer and therefore ensuring the method selected for securing a retirement income is sustainable and takes account of inflation is absolutely crucial." It's not all about annuities anymore. Longer life expectancy has been consistently eroding annuity rates over the years and when you take the impact of inflation into account, an annuity income can look meagre for many people.

 

"Income drawdown can provide a more flexible option for the new retirement marketplace, but advice is important to ensure it is sustainable and fully understood by the investor." Approximately 400,000 people each year buy an annuity, but last year saw rates fall to historic lows amid falling gilt yields and rising life expectancies. There has been a drive within the industry in the past year to increase people's awareness of their options at retirement, particularly highlighting that the amount a person could get from an annuity can vary by as much as 50 percent between different providers. The Association of British Insurers (ABI) has launched a website that highlights the different incomes offered by various pension providers.

 

Drawdown products are designed for those with larger pension pots, worth more than 50,000 pounds. They allow people to take a capped income at a level set by the Government Actuary Department (GAD). Some of the offshore QROPS products will allow rates that exceed GAD UK rates. UK drawdown clients can take an amount worth 120 percent of the GAD rate. It means that pensioners in drawdown can take a larger income at the beginning of retirement than annuity customers, though this may dwindle as their pot decreases in size as the year goes by.