My theme for these columns so far this year has been separating the strategy from the tactics. The strategy is about planning ahead and working out retirement objectives, while the tactics involve identifying the most suitable solution.
This approach highlights the benefits of advice. A good adviser should have the confidence to tell a client if they have the wrong information or are analysing a situation incorrectly. So what are the key issues that, when explained properly, could influence someone to change their mind?
1. It is not black or white
It is easy to agree when clients say they prefer drawdown because they like the flexibility and want to leave their pension to their family. But with all important decisions there are trade-offs that must be considered.
That person should understand the flip side of flexibility is not having a guaranteed income and that leaving money to their family could mean getting less during their lifetime.
Similarly, those with a preference for annuities also need to be informed they are locking into low rates and will have no future flexibility. Most people do not realise they can have a combination of both annuities and drawdown, so the option can be appreciated when pointed out.
2. A strong case for annuities
Annuity rates may be stuck in the doldrums but they still have a useful role to play as the only policy that can guarantee income for life.
There is a growing body of opinion that shows the case for annuities gets stronger as people get older. In practice, this means everyone in drawdown should be considering annuities as they get older and want to de-risk their income.
3. The risks of drawdown
Many people still do not understand that investing for drawdown is different to investing before retirement.
We cannot predict the future but we can recommend strategies that take into account some of the specific risks affecting drawdown.
The annuity market ended up in a dark place because the industry promoted price over suitability. Let’s hope the drawdown market does not end up in a similar mess by selling flexibility without explaining the risks.
Billy Burrows is director at Retirement IQ and adviser at Better Retirement