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Alternatives to annuities

The Investment Management Association has called on the Government to end compulsory annuitisation after modelling eight alternative drawdown strategies.

The IMA says its research demonstrates how non-annuity investment products can provide a lifetime income for retirement.

It says the Government must offer more choice to consumers when they are deciding how to get the most out of their pensions at retirement for the increasing number of individuals in defined-contribution schemes.

It says looking at the alternative strategies show the potential for higher returns whilst avoiding the risk of running out of money.

It found the combination of lifetime income and bequest delivers up to 20 per cent more than conventional annuities but says, because the strategies carry greater exposure to risk, a combination of annuities and drawdown may be the best option.

Chief executive Richard Saunders says: “The current rules act as a barrier to diversification and prevent choice and product innovation.

“Long-term retirement provision is moving inexorably towards defined-contribution schemes and the introduction of personal accounts will give a further major boost.

“The question of how to ensure that individuals can convert their savings into a decent income when they retire will become urgent.”

Just Retirement head of retirement income solutions Nigel Barlow says: “Flexibility and increased risk-taking may be great for those who have big funds, typically £250,000 or more, but the truth is that the vast majority of individual funds are nowhere near that value.”

National Association of Pension Funds policy director Nigel Peaple says: “We welcome innovation and flexibility but any proposals which add complexity to the decisions faced by people at retirement or reduce their certainty in the level of income they will receive, should be treated with caution.”

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