The Lang Cat has called on providers to better explain guaranteed drawdown products as it argues advisers are wrongly discounting guarantees as part of the retirement planning process.
Guaranteed drawdown products – often referred to as unit-linked guarantees which combine drawdown with assured levels of income – have increased in popularity since the pension freedoms but are still often seen as expensive or underperforming.
A report from The Lang Cat, published today, found that projecting back over 25 years guaranteed drawdown was found to generate higher income than both drawdown and “third-way” products. However, death benefits were marginally lower than third-way products.
In a simulation of volatile market conditions, guaranteed drawdown was found to provide a steadier source of income than drawdown or third-way products.
The report says: “Perception is much more of a barrier to guaranteed drawdown usage than raw cost. With an outcome-focused approach, client needs can be well met from the range of products available, and that includes guaranteed drawdown.
“But no adviser or client is going to use something he/she doesn’t understand, and it shouldn’t take a PhD to work out what’s going on. This is one for the marketing departments to sort out – and if they can, there is no reason why guaranteed drawdown shouldn’t form an ever greater part of the retirement planning landscape.”
The Lang Cat argues for clients who do not have an aggressive risk attitude, advisers must look at options outside of traditional drawdown.
The Lang Cat principal Mark Polson says: “If you’ve reflexively dismissed guaranteed drawdowns as too expensive, you don’t get to do that anymore. Sorry. There’s no good reason why guaranteed drawdown shouldn’t form a part of the retirement planning landscape.”